ANNUAL ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK J UST TEN YEARS AGO THIS MONTH it was my honor to address this meeting for the first time as President only some $12 million in the 18% subscriptions of other members had been made available to us in a of the Bank. It is reassuring to recognize among you usable form. We had yet to induce any private finan­ today many old friends who, over the years, have done cial institutions to participate in our development lend­ so much to help realize the promise of this institution. ing. We had already established our firm policy of Perhaps you will forgive me if I look at our position earning at least enough to pay our way; but our lend­ this year with reference to where we stood in 1949. ing operations were still much too small to indicate For I have been struck by how far our work has taken whether we could carry through this policy in practice. us since that not-so-distant date. We had disbursed more than half a billion dollars In that year-1949-the foundations of the Bank's equivalent for reconstruction, but scarcely anything organization had been soundly laid by my two prede­ for development. cessors in office, and the pattern of our operations had The growth of the Bank over the intervening ten been set. Under Mr. Eugene Meyer, whose death this years is a great tribute to the achievements of member year saddened us all, and under Mr. John McCloy, the countries. As the Annual Report before you sets out Bank was primed and readied for its tasks. It was my in detail, we have in the fiscal year just ended exceeded good fortune that, before I came to this office, so much the equivalent of $700 million in our lending for two of the preparatory work had been done. consecutive years. And with the $141 million in loans By June 30, 1949, the Bank had invested more than already signed in the current fiscal year I am confident half a billion dollars in the reconstruction of countries that our present volume is no passing phase. in Western Europe. But we had made only three truly Over and above our initial reconstruction loans we development loans totaling a little more than $100 have committed in all about $4 billion equivalent in million, and there was more than a little impatience development loans-a third of it in the past twenty­ with our lack of progress in this direction. Earlier four months. Of these development loans we have we had broken the ice with our first bond issues: two disbursed nearly $3 billion equivalent in some 30 in the American market and one in the Swiss market; different currencies-again a third of the disburse­ but outside of the subscription of the United States, ments coming in the last twenty-four months. 6 Up to date we have made 49 successful issues of our countries; in 1959 we are financing-or have financed securities. And the latest issue was a particularly already-projects in 50 countries. In 1949 our out- encouraging one. In August we offered, for placement standing indebtedness was less than $250 million; entirely outside the United States, a new issue of $100 today it is almost $2,000 million. Over the decade million and received subscriptions of over $200 member countries other than the United States have million. We found we had to make allotments and we released in a usable form nearly $740 million from ended up placing these bonds with 63 institutional their 18% capital subscriptions, a sum that is growing investors in 35 different countries. In eight of these all the time. Our net earnings have risen from $10.6 countries no Bank issue had been bought before. million in 1949 to $46.5 million in the year just ended; Earlier in the year, as you no doubt will remember, our total reserves, which stood at $22 million in 1949, we sold our first issue in the German market. A 200 stand at $433 million today. million deutsche mark issue, it was the largest public And while the trunk of the tree has grown rapidly, issue we have yet sold outside the United States. Today the Bank has branched out in several directions not over half the total of our funded debt outstanding is foreseen ten years ago. This month we made our first held outside the United States-in 42 different coun- loan for an atomic power project-the SENN project tries. Included are some $680 million in dollar bonds in Italy. As you know, we approached this matter and notes. or about 40% of our dollar debt outstanding. with great care, sponsoring a study in which many of And over and above our sales of bonds we have the world's leading experts on nuclear power took attracted to date $590 million equivalent from some part. We encouraged an elaborate competition among 150 commercial banks, insurance companies, and other builders of power equipment in order that this might private and public financial institutions who have par- be a thorough and fair test of the cost of this Pro- ticipated in our lending without our guarantee in one methean gift to mankind. That so many nations were way or another. These participants have already re- willing and able to cooperate effectively in this matter ceived from our borrowers more than $260 million is to me immensely encouraging. in principal repayments. You are all aware, of course, of the Bank's signifi- Another $280 million in principal repayments have cant role in mediating economic conflicts among been made directly to the Bank and have become member nations. The discussions leading to com- available for further lending. Not only have there pensation for the shareholders of the former Suez been no defaults, but some countries have retired their Canal Company and to settlement of the financial obligations well ahead of maturity. [might point out claims between the United Kingdom and the United that the Netherlands-the country which in 1949 was Arab Republic have been translated into agreements the Bank's second biggest borrower-in 1959 retired which are now being carried out. the last of its obligations to us-more than ten years During the year substantial progress has resulted ahead of the longest maturity outstanding. Today the from the Bank's efforts to bring about a settlement of Netherlands in keeping with its traditional role in the Indus Waters dispute between India and Pakistan. international finance is one of the important suppliers As is mentioned in the Annual Report, in the spring of resources to the Bank. It is not a country rich in of this year I paid a special visit to New Delhi and natural resources; it feels the pressure of population Karachi. I was accompanied by our Vice President, more than most countries do. This makes all the more Mr. Iliff, who has been in charge of the negotiations admirable the recovery which the Dutch people have since 1953. In the course of this visit understandings made in the past decade through hard work, self- were reached on several important aspects of the prob- discipline and financial statesmanship. lem-about the broad outline of the engineering works In 1949 we were 48 member nations; in 1959 we are which will have to be constructed, about India's finan- 68. In 1949 we were financing projects in only eight cial contribution towards the cost of these works, and 7 about the length of the Transition Period during And then, of course, there are the other branches which India will limit her withdrawals of additional of our activities which have for some time now been water. integrated into our regular operations. There is our Meantime, the Bank has carried a step further its staff college, the Economic Development Institute, discussions with friendly governments in regard to the which, in addition to providing a forum for senior participation by them in the financing of the $1 billion government officials to exchange ideas and experiences engineering plan which is under consideration. The on common problems, is earning for us an ever wider governments of Australia, Canada, Germany, New circle of friends and stimulating critics in those coun- Zealand, the United Kingdom and the United States tries which are our primary concern. These men are have indicated their willingness to consider contribut- the men who will be making the key development ing substantial sums, subject to whatever parliamen- decisions in the underdeveloped world of tomorrow. tary or congressional authority may be necessary, and Our technical assistance services have steadily ex- subject to the conclusion of an International Water panded; they include resident advisers in a number of Treaty between India and Pakistan. member countries and a continuing traffic in general Further discussions between the delegations of India survey missions and other, more specialized missions. and Pakistan have taken place in London during At the Bank's headquarters six months training along- August and September under the auspices of the Bank, side the Bank staff is offered regularly each year to and I am happy to report that very encouraging prog- junior officials from member countries. So far 91 ress has been made in drafting the Heads of Agree- men and women from 52 countries have availed them- ment on which an International Water Treaty can be selves of these facilities. based. We have established contacts with industrial devel- For this, as for much of what the Bank has achieved opment banks, public and private, in a large number in the past in this extremely difficult matter, we are of member countries, and through these have come to indebted to the resourcefulness and persistence of Mr. know something of the hundreds of small enterprises Iliff. which, just as much as the big dam or the railroad, are The issues which still remain to be resolved consti- contributing new jobs and new production for a better tute what, in my view, is a narrow gap. It would be material life in the underdeveloped world. Just since profoundly disappointing-and I am sure the disap- July I of this year we have announced four loans to pointment would be widely shared in this room-if this industrial development banks-our first to the newly- gap were not closed. I am confident that we can rely established Industrial and Mining Development Bank upon the statesmanship of Prime Minister Nehru and of Iran and our second each to the Austrian Invest- President Ayub to see that it is closed. ment Credit Company; the Industrial Credit and This project is an enormous undertaking-one which Investment Corporation of India; and the Pakistan is bound to test the mettle of both engineers and finan- Industrial Credit and Investment Corporation. This ciers as few development projects have ever done. latter corporation was established, with help from the Only the skills and resources of an international com- Bank, only 18 months ago. munity could measure up to this challenge. That they I would like to say a word about private interna- are doing so, and that the Bank is being allowed to tional investment. As you know, the World Bank has playa part, should give all of us added confidence in always carefully observed the principle, incorporated the worth of the international approach to economic in its charter, that it will not make investments for development which we have been advocating and pur- which private funds can be obtained on reasonable suing for the past ten years. terms. But we have on many occasions and in many ways tried to lend our support to this kind of invest- * * ment, notably, of course, with our sponsorship of the 8 International Finance Corporation. It is a source of national capital for the development of the under- great satisfaction to me that private international developed world lies in the private capital markets investment is now responding, from a great number of of the industrialized countries. The World Bank is a countries and over a wide range of industries, to the major channel between those markets and the coun- opportunities and challenges of economic develop- tries where international capital is so much needed. ment in our time. The action you have taken has enormously increased We will continue our support of private investors the usefulness of this channel. Investors the world where we can. But I wonder if there is not a place over now have notice that a preponderant majority now for an entity, made up exclusively of private of the nations which make up the membership of the international investors from all countries, which could World Bank have renewed and replenished their guar- more effectively tell the story of what is being done antee behind our securities. There could be no more and champion the kinds of policies which attract such effective expression of support for the Bank and what investment. This entity, if it were truly international, it stands for. might help in finding solutions to differences which I cannot let this opportunity pass without also have actually arisen between governments and foreign thanking the staff of the Bank for their constant and investors. This way it could serve to broaden areas tireless support. I have been unusually lucky in having of agreement and increase the awareness of the very as subordinates a corps of professional men and great opportunities which exist for the expansion of women drawn from more than 48 different countries. private international investment. The loss this year of one of our most able executives, our Treasurer, Mr. Henry Riley, has been keenly felt * * * * * It is clear that we have come a very long way since by all of us. Mr. Riley exemplified the kind of devoted 1949. I would like to say that no executive could service which has come to characterize those who are have had more cooperation and encouragement from making a career in this Bank. his directors and stockholders than I have had. This * * * fact, without which there would be no record of In reviewing the progress the Bank has made, I have progress to cite, has been dramatically symbolized cited but one of many indications of how nations in in recent weeks. On September I the Governors the past decade have come to work together in the voted overwhelmingly to approve the proposed name of economic development with a degree of suc- doubling of the Bank's authorized capital. By Sep- cess which confounds many of the gloomy prophets tember 15 last the required minimum of $7 billion of 1949. I might have cited instead the large volume of equivalent in subscriptions to make this doubling investment funds of all kinds which is today flowing effective had been received. Today a total of more across national boundaries; or the rise in world trade t.han $8 billion in capital increases has been subscribed. over the past ten years; or the growing number of And we confidently expect that other member coun- countries which are mastering the arts of fiscal and tries that have not yet done so will send in their monetary control and the new public attitudes which increased subscriptions by the end of the year. come with this mastery and are fostering it. Over and above this a large number of member But perhaps the most timely indication of our countries have asked for special increases in their sub- progress is the fact that today there is a serious move ~,criptions, reflecting the economic progress they have to broaden the international channels through which made. In particular, Germany, Japan and Canada new and additional resources may flow into the devel- will take a total of $650 million equivalent in special opment of the underdeveloped countries. I have long increases. advocated more emphasis on multilateral responsi- This is truly an impressive vote of confidence in the bility for these matters. The proposal of the Govern- Bank. The largest and most elastic supply of inter- ment of the United States that the Bank's techniques 9 and experience would provide a good environment for There are some in the creditor countries who advo- a new departure in this direction is, of course, very cate putting foreign aid on a grant-in-aid basis in encouraging to me. order to escape the eventual necessity of taking repay- Since the proposal for the establishment of an Inter- ment in foreign goods. On the other hand, there are national Development Association will probably some who advocate putting all aid on a 100% hard occupy much of your discussion this week, it would loan basis, ignoring the virtually insuperable transfer obviously be inappropriate for me to tender any problems which this would create. Even if the creditor detailed comments. But let me renew my welcome for country is prepared to continue lending and relending the American initiative and, at the same time, exercise on a large scale indefinitely, so that its actual capital a banker's prerogative by emphasizing one or two investment need never be repaid, the mounting burden important general principles which I hope you will of interest can itself become a formidable problem. allow to underlie your discussions. It is with such thoughts in mind that I have often In the first place we must not forget that no new endorsed in principle the idea that a significant part mechanism for the administration of development aid of development aid should be extended on terms pro- can diminish the responsibility which is shared by all viding some relief from the transfer burden. I have members of the international community to keep open repeatedly observed that the justifiable and really mini- and active the channels of international trade. Aid mum needs for development capital in the underdevel- can never be an acceptable substitute for trade. And oped countries are greater than can be met through international investment can never prosper if it is not conventional loans. I think there is general agreement built upon a solid foundation of international trade. that the International Development Association From the point of view of the underdeveloped should be so designed as to enable the World Bank to countries, there is ample evidence that economic introduce alongside, and in addition to, its regular op- growth cannot be pursued successfully without a erations, a more flexible kind of development lending. dynamic expansion of foreign trade. "Import substi- There will still be, however, a large volume of inter- tution," that is, the development of local production national investment, both public and private, which which will reduce the need for imports, has its place can be serviced only through the traditional processes in the process of international readjustment, but I of international trade. New and less burdensome still know nothing that can provide a real substitute forms of aid may ease the pressure on the import for exports. Exports become all the more important policies of the industrialized countries; they may allow to the extent that countries assume obligations to more time for gradual adjustments in international service foreign public or private investment in their trade patterns. But these adjustments are bound to territories. The nature of this foreign exchange trans- come if we are ever to reach a balance in world trade fer problem has by now become so obvious that it at a high enough level to allow the underdeveloped hardly bears repeating. world to pay its own way. The lesson has equally important implications for Many trade restrictions today, particularly on agri- the industrialized countries. For these countries, too, cultural products and industrial raw materials, already aid is no substitute for trade in their effort to meet the stand in obvious contradiction to the professed aim pressing current needs of the underdeveloped world. of the more advanced countries to aid the underdevel- But it is also true that aid today must be followed by oped lands. And to these restrictions must be added the trade tomorrow if the aid takes the form of loans continuing problem of commodity surpluses and conse- which must be repaid. Again I am making the familiar quent fluctuations in the income of the primary pro- point that a creditor country must be prepared to accept ducing countries. N othingwe may do here should relieve eventual repayment in goods and services if the struc- member countries from the need for addressing them- ture of international indebtedness is to be sustained. selves to these matters with new vigor and imagination. 10 There is a second general condition which I think professions lies in increasing productivity in their re- must be met if your discussions regarding an Inter- spective commonwealths by thinning out the growth national Development Association are to lead to con- which oppresses the soil, by rooting out the profitless structive results. That condition is that you agree at weeds and lopping off the dead limbs. the start that development aid to be effective must be Is it too humble-or too fanciful-an analogy that regarded as being a recognition of and a support for we should make it our guiding purpose to be the the recipient's own efforts rather than a palliative for gardeners in the fields of economic development. I mismanagement. One of the surest roads to the defeat do not see how there can be a lasting agreement of our common objective lies in using such resources among sovereign nations to pool their resources in aid as we have available to abet the perpetuation of poli- of the underdeveloped world unless it is based on full cies which we know can only distort or destroy respect for some such professional approach. economic growth. It is, after all, not the shape of Should the underdeveloped countries simply want the financial instrument but the presence or absence money and not development capital-that is, capital of the right economic policies which primarily deter- administered to achieve its development purpose- mines the success of an adventure in economic develop- then I suggest this would be the wrong place to come. ment. This is true whether we are talking about aid Should the industrialized countries seek merely to administered by national governments or by inter- achieve some immediate tactical purpose-whether national organizations-whether we are talking about for commerce or diplomacy or domestic politics-and loans or grants or something in between. not to find a more effective way of channeling a When I say "right policies" I am not talking about measure of their resources into the orderly growth of a series of more or less rigid formulas, such as might the underdeveloped world, then it would not be the guide the work of a chemist or physicist. The prac- path of international cooperation on which they titioner in economic development is more like a gar- would be treading. dener; he is driven to protest when he sees an economy Let us not forget this; whatever we here may do, bowed down with an excess of projects and programs economic development will go on. It has become an which overtax the supply of available resources, just irresistible force with an impetus behind it that we as a gardener will protest when he sees a fruit orchard can increase but cannot check. If we use, rightly, over-planted with trees. He is bound to attack the our energy and our resources I believe we can make debilitating action of inflation as the gardener attacks this force serve the ends of peace and tolerance among the weeds which suck the fertility of the soil from the men and nations through lifting the burden of poverty wholesome flowers. He develops a practiced eye for from the individual and so free him to exercise his own unproductive costs, just as a gardener is quick to spot creative energies. Therein, I am convinced, lies the the deadwood in his orchard. The essence of both hope for our own generation and for posterity. II