OOlTFIDTilTTLiL - TO 3J RJLJ.:~s:m FOR PU3LIC.~TIOlT •.':.FTJR 2: 00 P .n., FRIDAY, APRIL 18, 1947 IUT3R1i.~TI01T.\1 3AliK FOR RDOOlTSTRUCTIOlT .uID D:?.JVJLOPMJlTT PlliJSS IBLJ.\SE liO. JS J\DDEJSS 3Y EOlTOR.DL:E JOH:"!' J. McCLOY, PRJSID~i.1T OF THil IlTTER"" lT.'i.TIOlL\1 J.tTK FOR 1EC01TSTRUCTI0lT .t'JTD D:3VJLOP!,01TT, ..'..T TEJ S::JV:JlTTH ..UiFU.\1 FORUM OF S0CL1 .UID 3COlTOiviIC TiiJ:IDS, EEM YO.BK CHl.PTJR, .iJCRIC ..uT SOCIETY OF CH..'i.RT:J:J 1IF3 l!1TD3RUIUT:JRS, Tmm F...1\LL, rrEw YORK crTY, 2:00 P.H., :1..PRIL 18, 1947. IlTT3Rl:.:\.T I03.Tlu., Eii/:JSTi'ClTT OF CAP IT.1.1 1J;his is the first tine tlv,t I h"VO ovor S})Okon in public in tho role of r, b~nkor. I doubt th':'.t, but for tho office I now hold, I would bo cnllod upc-:1 'b~t .",ny such uoll inforned group ns this to discuss ocononic trcncls with you, I ,"1:1 sure you ror,lizo, n,s i ncutel? do, th"'-t ny 2.ssun:1tfon of tho office of tho Presidency of n bnnk ... ovon tho lntornr. tionn.l Jnnk ho..s not suddenly bestowed knoi.·.rJ.odr;o rnd uisdon in finr11co or ocononics u,Jon no. When I r,skod Mr. Myor ,..hr,t I should bo o:v.,;iocto:l to tnlk about· ho sr,id th.,.,,t tho gonor ...,l su:)joct wn,s cr..!Ji tnl, "lid. I could sny sonothing n,oout thnt. I roc.n,11 thd ono r.i;m so'.".lo tine nr,o to,lkod r,t loncth r,::iout Ct',pi tnl r.ncl his c0:·1,.10nts h"\VO boon tho subject of nll ::wnnor of controversy ovor since. .\lthou5h K!'.rl l,1[',:i:'X h.~d tho S['...':10 subjoct n,s thr.t ri,ssip10cl to no, I think no one nood fool nny concern thnt sinilnr crmtrovorsy ,·rill be gonorr,tcd by ny cliscussion of tho suojoct todn.y. 'l·failo I h,wo not "boon n bnnkor, I h['..VO h1vl rn.thor oxtrr.- ordin['.ry 0puorttmi tics of .socinr: nuch of tho worlcl ~nd unrticulo.rly h:1.vc I s·oon t:':.Ccur:ru.lri.t ions of C.'.".:oi tri.1 a.i sbursoo. through.. out tho world i l l order t-J r.chiovc dofini to ohjoctivos~ Sonc .50 billion dollnrs of tho wonlth of tho United St,:,tos wo.s r.i..".dc nva;l.lnblo to those who four:ht with tho United St1'.tos in order that victory in WP.,r night be f'.chiovcd. Those billions, .'.",ddad. to tho :::mch larger suns which tho Uni tod. Stn.tcs horsoJ,.f oxpondod on her • own wo.r effort, 'brought tho total of 01:1.pi tnl disbursed by :this country to npl)'l:'oXin~.tcly 341 billions, ri..11 used in tho r:m.in for tho purpose of dostruction. lf we a.dd this to who.t others hnvo oxpGndcd for the so.no purpose, tho figures bocono ;, nstron0nico.l indeed. It does seen thnt if the world ctin nnd d('los collcctivoly spend so nu.ch for destructive purp0sos. it iis Uoo thr,t we r,,r,.vc the best thoueht we co...11 ripply to tho intorn~tiono.l invostncnt of c~pitnl for productive purposes, to tho cro~tion of conditions of econonic hcnlth throw~hout the world. It is not only political hoo.J.th but oconor.iic henlth as well tho.t we r.iust sock. if we are to r,.void the clisruptfons. r.nd unholy prncticcs which lo:'..cl. to wr.,,rs. I roccll on one of ey S"'·:-tewho.t froqucmt trips about tho world - this wv.s niter Gerr.io.ny h1:1.cl surrcnd,ered ... I w~s wnlkinC; through tho br.i.ttcrcd t:i.nd. dc:::iornlizecl city of Vionnn nnc1. su1\n.only 11.cross the street I sa.w tho offices of the Orodit Anstalt, It 'broup)lt bn.ck nor.iorios of 1931 and I ox:porioncod r>.. strnnr,c fooling. For sudclcnly, ncross c.11 of tho terrible destruction of tho intervcninr; yo'l.l's, l rccr.,,llcd tho u.nco.siness rmc'. foro'bodint~ w~lich tho nnnouncoryent of tho f.'.1.iluro of thnt bo.nk hnd. cc.:u.s:.id in lo1011lodgo"..blc circles in tho Unitoc1. Stn.tcs. Altho1-·1.f;h I ht"..cl boon entirely ronoto fron My trnnsr..ctions inv.,l vod in tho b".Ilk rulr. thour.,h I could. porhl'.ps not tra.co o.ny direct. c0nnoction between its fl'.13,.urc r.i.nd tho terrible o\l·onts th0.t hD.c1. in tho nonntir.10 occurred, tho sense of their connection w::,,s present,- ~ho ocononic cUsor,so of which tho.t failure wns o. syr.:1ptor:1 wr.s cler>.rly n contributinc ,fr'.ctor to the fears Mel pressures which ultir.ir..toly e;cnor...,tcd \·Tru-. If we nrc iCT1Jellcd 1 lm'r,ely n.r,~inst our will,. to invest so ouch of our or,;pit~l for tho ~ccooplishnont of destructive purposes, 0u.~ht we not be willi11c t0 nr.,,rsht:i,1 substnntinl portil')ns of ou.r o.ssets for the purpose of r.chiovinr, econonic ::md political hcnlth? Uow oMnonic f',n,;-l uoli ticn.l health nrc not r.chicvccl by tho invostr.iont of ~.1onoy [',lone - fo.r frrn:i it. Jut I think it is inclis1Jutr';ole thr.:i.t tho iq;;,rovoncnt of r.:cnerC?.l trt:.do c·mcli tions .,_r()unc:t tho ,·r0rlcl hn.s n strnn,"". ri.ncl. clofinito tondoncy to iqorovo both p"li tico,l Mc:. ocononic rolf'.tionships. If this bo so, it is wJrth our while to oxn::1ino tN·othor this ·1.ft,ornnon s".'no fn.ctors und.orlyint: tho intornntionnl invostocnt nf cr,.pi tt1.l r.ncl. to explore sono of the lessons wo ho..vc ':Jeon tn.url1t oy intcrnri..tiono.1 invcst- nont in tho pn.st. It ncy then ;,o !J!'Ofi tr.blo to Dnri,lyzc tb,e role which tho Intorno..tiono..1 Jnnk, ns one of tho principn.l intcr- na.tionnl finrncinr: ri,.·:encios in the vrorlcl. r.1r;1.,y be cnllod u1Jon to plny. " Jy intornntionnl invostnont of co.pitnl I norm tho invostncnt of tho func1s of one or· uoro c:1untrios in n.nothor country for pro·ductivo J.JU~)osos. Thnt invostnont co.n to.kc nny l"lilO of n. nunbor of forns. It crin bo o. lorn frrm one Govornnont to rmothor. It c~n cc n lonn nnclo throur:h noroo.l in.,rostmont ch~nncls, 'by :priV,".'..to h1vostors in 0110 cruntr~r t,l"l tho Govornnont, or to pri vato entGI'])I'isos, in ·".'.nC'lthor cciuntry, I.t cq.n tn.ko tho forn of direct invcstnont of venture o~~itnl nbrond. Or it cm1 tnkc the f0rn of 1:1. lon...11 to one c0untry, or to ontcrr,riscs within thn.t country, of curroncios of other cnuntrios, throur:h tho nccliun of nn /"./''ency such r.s tho In tornnt:t.onnl Jnnlt, which r:lorivcs its funds fnn both G0vcrnr.1onts rncl ;,rivn.tc ir:~.restors, Jut whntcvcr tho forn or C'.1r:ibinntion of ferns which it ncy tnkc, ther·o /:'XO two funclnncnta.l chnr0,ctoristics of tho in+,or... nr,tionnl invostnent of c~.;Ji tnl of which I spcnJc: iirst, timt tho invostncnts o.re nrvlc ~1rir.m.rily 1Jy or thr0w'.h funds derived fron those countries which, by re,'.'.son 9f their stq_Jo:rlor resources or prnductiv.c ncchnnisns, nro in o.. :Josition to enjoy rm OJClJOrt su~)lus; nnd, secm1ct, thc,t they o.re nri..clo for the purposo of devolopin:,: tl;le 1Jroc1udi vo hJsourccs nncl. C.'.'..pnci ties nf loss f1Wi'lrnll],y si tunted n.n.tions. It is not n. wise intornntiono.l invostnont if tho flow 0f cn::,1i t:i..l c1.o,s not oq_u.-,,lly bcmofi t tho 'borr11wcl" n.nc1 tho lcn:1cr. To tho borrowinr: OO\Ultry, such r,n invosk1ont shoul(~. norm nn 'll1lJ0rtuni ty to acquire froo the' land.inr, 001.mtry or elsewhere tho r:oods c,ncl. services which it neccls tn incroa.sc tho level of its ·:iroc:1.uctivity rncl therefore of· its ronl WC".lth nnn. st~1.clnrd of livinr:. To tho lonrlinr, country, it sh0ulc1. nor.n the cron.tion of r<. r.mrl::ot for tho sur:_)lu,s c:oocls it is in n. }Y>S:l tion to y:r':"d.ucc nnc1 OX21'1rt, nnd the ~.ssur.'.",nco of a.n ox1x1.nr.Unr.: world trr-.do in the future, ,·rhich will onnblo it . to na.intri.in ru1cl inc:ro.'\sC tho output of its :_-:,rocluctive plnnt. In n.cldition, tho incrcr'.socl iJ:1!:ort o.f ,"'.oocls ruirl services which cone t0 tho· 1cml:tn~ country by wri.y of return on its invcstnent; c,mtributc 1Urcctly to cm incrcn.sc in tho str.11 "..nrd. of livinr; of its citizens. To b,;th it slic:ulcl lot'.'..d 1 tn wicl.cr unc1orstr>.m1in~, oxchru1.r:o of idcr.s r,nr. :..1Ut;u.ul ros:)cct. -- Jut these results flow only frrm wise intorii.r.tionn.l invcstnont. J;.l')nns ooclo for unocononicnl 11rojoct1s or for :purx:i0sos which o;ro non-,rocluctivo or n.ro bcyoncl the cr..,o..citics of the b"lrr"l\·rin:; country to cnrry out, ncroly squr.n<:1.er ·tho wco.l th of tho lond.::ir. incro~sc tho difficul tics of tho bl')r:ro,..,or • m.i.d inctuco rnther tho.n nv0id poor intornn.tiono.l relations. Fron 181.5 to 1914 Grant 3rita.in took ;:iy ff'1.l' tho nost in;1ortnnt ::_iosi tion. in intorn'l.tionnl invosimont, Fr('ln tho nicLcllo of tho 19th century r.mm..rds hor foroi{~n invcstncnts incron.sod by • ._· .:.:.:.. nb,ut .300 nillion dollnrs rumur,lly. In torr.is of :)rosont clny ~-mrch~.sinr: ::_J01·10r tho invo 5tr.:or~t wr:.s nuch lr'.rr:or, D11c1. it W'1S r.mlo nr.o,inst tho br.cl:r;r-:nmci.. of n cO·Jt1.lrction m1c1 . 0, ,Jrocluctivo T)lnnt very ouch ST.1'cllor thnn thr,,t,- s;;y. of tho Unito-1_ St.,,tos tnclny. !Tot ''.11 of Gro[',t Jri t[',in • s invostnonts wore wise or f 0rtunntc, but on tho wh,,lc thoy wor,, c,f onornous b onofi t to Grant Jri tn.in, cnr-.blinc: her to builcl up in tho :.JOriocl of hor r,roatost inclustriD.l sui1rorn'.cy now nn.rkots with which to trnclo e,ncl r. s0urco Jf inc':,no to sti;_:iiJort ho!' si.,nndr:.rd of li vinrt when thr,,t su:_)ror.mcy wns chnll- ow·ocl. Thoy t·ro;rc (\f onornous bcnc:fi t to tho rost of tho worlcl, too; nuch of tho dovclo1mcnt of ir.clustry in Eur')110, r,nc't 0f tho inclustric.l r.ncl n.r,ricultU+"nl dovoJ.o;:lT.1ont of Joth Horth r>nc'. Sruth .li.,'loricn uncl of tho F1:,r :3,r,,st wr•.s lJ.'.".clc ;Ylssiblo throurh tb1 finri.ncinr, JJroviclocl by Gro~t Jri tn,in nncl to r:,, loss extent by other crocU tor countries s-uch ns F!'onco, the Uothorl,'."..ncls, Jolr:iur.1, Switzcrlo.11cl, Gorrnmy, nncl Itnly. \'l('\rlc1. i'in.r I brour:ht this ')hnsc tri t:',ll onrl. Gro,..,,t J:ri to..in c'trow hoo.vily nn her fo.roi{~n invostnonts d.urinr: tho 1-mr, r,,ncl. thow:h she u:i.s o..blo t-:i restore thor.1 b;y- 1930, she hnd clifficult;r thoro- r.ftor in "..C!1ioving ,'.'Jl OXJY1rt su.r:-)lus. T~10 U21i tocl St:-,,to:s, on tho 0thor h,.:d, sud:·1.cnly founcl itsolf in tho unfnnili,'.'..r r0lo of being ono of tho n..,,,ior S'.Jurcoz of intorn:ctionnl crocli t. :Frr:n 1920 to 194o, n1):)roxindoly 9 billion clollr>.rs pr.r vr>,luo nf foraie;n d.)J.lo..r 'bonds woro issuocl in tho Uni tocl Sto..tcs, nncl l:,,.rr;o suns of Aporicnn equity c8.:)ik.l woro r.!.lso invostocl ,,1::·road. :Elstinr.i.tos in·1.ic['.to, for oxm:r:_1lo, thnt :in 19.38, t:10 out~1tnnclinr: o:;:tornal invostnont of tho Uni tea. Stntos a.nou.."ltod. to cloven nn·:. c', h.".lf billbn clollnrs, As you lmo 1.-,, sor:10 of this forcir;n ir.vostnori-t of tµo U:1i to,1 Stl'..tcs clurbr, tho ::oriod fr::in 1920 t0 194o ,-ms h~11hr'..zri.rcl ['..11,:. ~:isdiroctoc1..; n :)ortion, r.t lor.st, of tho c1.l)~x,ront capriciousness nny bo D.ttributocl b the unfo.r:ilinri ty of t~1e ,Acoric.'\;1 n'.'.rkot with intor~mtio:1['.l finD..nce.,, Money. in sono cr1,sos, wr,,s lonnoa. for un- ~lroclucti vo ;;ur::~osos, c0u.11.trios were onc•Jur.v-:od to ovor '!:iorrow, nnd there uns li ttlo or no su::orvisLm of tho o:ig_)oncliturc of tho :,rocoo(ls. D1.1.1·inr, tho spocul.'.',tivo 0:)01:1 in tho Unitocl St,-,,tos in tho lo.st q_unrtor of 1928 r:.ncl in 1929, there was n sudJon c'Li version of co.:_)i tnl frNJ ,.bror.:.cl t') tho JJurchr.se of stock in ''c1.::-,r.10stic on~or- :;?riscs, thus Ct'.usinr: r:in.jor 0:r:ilnirrt'.ssnont to Eur0::_:,0DJ.1 crccli tors. ,As n rosul t of nll this, when tho wrirlcl-wicle do:::·ression occurred,. we were c0nfrontod with sio1.ificr.nt clcf.,,ults nnr~ l"ssos on foreign dollnr b0nc.s, tho ru:,,jor nron.s of clofn.ul t boinr, Le.tin ..:'i.noriea. nncl Gornru1y. It is worth notinr~. however, thn.t dos::ito tho wiclcs1Jror.d {11.ofaul ts, full pnyncnt W.'."..S nn.inbinod 0n the nut stnnc1.inr, foroir,n d1llnr bonds (1urin:-: tho ..)ori00. 'by "'\ustr•,,lin., Arr~ontina., Cn.nnc1.o.., Eire, Finln:n,1., Fr[.'Jlcc , s;,i t z orl[',,!lcl, Lu:rnn'?:lourg, tho lTothorlnu<.'!.s, !Tonrey, 1Towf·)unr"'..ltu1.d r..m:. tho U11itcrl Kin,"';ctor:i, 0-zochoslovcldo., Donnn:rk, Jclriun, :Sst111ic. 1 H:-i..iti, :tto.ly @d J11Jxu1 hv.d no c1ofa.ults e until World i'lnr XI. - 5 ... As f'. rosul t of tho rocont w;>,r, tho rt'lo of tho United Str..tos in intorn'.".tional finr..nco hri.s bocono f,'U' clifforont fr0r.1 tho..t ,·rhich it ho1°otof0ro hns ;)oon. Gro['.t Jri to.in. ins'eo~.c:1. of -::icing n c::.:_::itnl-c:~,ortcr, hr,s, nt lor..st ton:;)ornrily, ::ioc,no n. cc::i tcl- ir.rortinc U[',tion. Most of t.ho other hir,hly inrlustrinlizoc1. C".:>U11trics of tho world hnvo n.lso ::icon rrw.'."'..r,ccl by tho ~:rnr nncl nust QUrinr, tho ]Criorl of their reconstruction hnvc n continuinr, not i.ri:_;ort bl'.l.lnnco. On tho othor hnncl, tho Unitocl States~ 1·1i th its r:ront J:iroductivo nn.ch:j,no not only intc.ct bu+J OJq,X'.11C'locl to n. cc,:x,,ci ty never before known or ovon approo.chod, atnnda a.s ono of the ..,,,·,i tr.l ... fo1:r, nncl corto..inly r.mch tho nost ir.r,•:>rt[',llt, of tho c . ox,_:-ortinr, nntions of the wr:rlcl. - · This :visiti0n dvos tho Unitc(l Sto..tos nn oi1:'r:•rtun.ity to contribute to the ~cJ:ntrnry nf tho worlcl, ,".!lit to its ,wn 1 ::r0s:;1ori ty 11 nn 02:,:rortunity ~,orho..:)s un2:rJ,rnllolec:l. o:x:co::-t by tho o~:orionco of Gro!".t Jri to.in :i.n tho 19th century. As Gro..,,t Jri tnin tho:1 onch."'l.ncocl its 0wn oconor.1ic position "Jy f inr,nci1v; in·iustrinl r,,m1, nr:ricul turn.l clovolorr:icn t throur:hout the ,.,0rlcl - rnilrom1s in tho Jr'.lk[',l1S, r;:ilc1 nininc in South .1fricn, rubber ::710.ntl".t ions in tho F10,r Bo.st, to :~·ick hut n. fow rn.nc1or.i oJ;:c..n~Jlos - so tho Uni to(1 St.-:,tos todny has whnt rq:J}'.)00.rs to :JG n cor.11x:i.rnblo opyortuntiy to contributo to r. })ros:porous ,"n:1. oxpanc1inr; world oconooy 'by nssuninr; the lnrr,c role in int0rn,-,.tionnl invcstncnt which its :f"'.vorablo l)rocluctivo :position !'.1/'.lws ··1)0Ssiblo. I c:.o not want to tclk too nuch ,".:b"ut tho Unite~:. St.'.',tos nncl its :,0~li tion. Toclc..y tho Uni tocl St/".tos is tho r,ro . . . t lend.inc; nation :mt 0 )oli ticcl oncl ccrmonic hoo.l th is not inducocl 'by the oc:monic c10~1inc.tion of n.ny one ccuntry. Intornr..tioi:::.i.}. lnvostr::10nt of /i.noricnn clollnrs ,-rill :::roviclo ossontinl ~ssiston~o, :;ut in tho l on,-: nm it i.·rill only 'be. 'by a full !".,CC c;.:i to.nee by other countries of their o:,~,ortuni tics -"'.nc1. their roS'.'"",msibil:1. tics tho.t ronlly sr:.tisf~.ctory ccon0nic com:.i tirms crm 1:io fully ~,chiovoct~ We shoulcln' t think of this cssontinl intcrnr.tionr'..l invostnont noroly in terns of ,.10ney; nonoy is only n, no,.,,suro of tho r:oocls nnc:. services which [',re tho rcrcl subject nf tho inv·ostr.1ont,, .A:nd whon we think of tho ri:)joct of the invostnont, it should.n't bo sin?lY in terns of o~Jort nncl ir.i:,nrt, or 'bnlttnco o;f ?",;;,·ncnts or ;:iuc1..r;ct:'..ry st[',tistics, ir.r;ortMt ns these no.y 'be; we shoulcl consic:.cr c..s i.10ro sir,ni:ficnnt the hnr1)ors, the cirfiolds, the hyclroolactric projects, tho steel nills, the fnctories, the 0il f ielc:.s, which thnt inv0str.1cnt will r.1:'.ko possible. ~ of those clcvclopnonts nt tho ::_;resent tine Tho finn.,.icin 1 is 11ot only ::m o::~~nrtuni t:n it is the S". tisf ...,ctinn of n d.os::,;orri.to nood. A 1--;rcnt :;_J[',,rt of the ocononio cor.:nuni ty of t!10 worlc1 i1.ns 'been dcstroyocl or rlor.10rnlizq,d,. If :its oco!i.onic rolm:.iili tr..tion is nnclo • ::_-:c::::; iblo, tho worlcl 1.'liil be ri. bot tor. }.ilf'.CC to li vo in for all concerned. If however, its ccononic honlth is not restored, there -6- 0 ney not only not bo o.n cx:_)r.i.ni1.inr, worl.c1 oconoi:zy- '1,ut o. vastly con- · tr,:,.ctinf'! one, tho C"nsottuonces of which no country would ultin~toly oscnp~. 0 Lot no enr.hnsize thnt whon I sJenk of need I t'J:l referring only to tho neod for :fin:,.,ncinr, tho rostoro.tion or dcvclo11nont of rroc1..uctivo fc>.cilitios :lll::1. resourcos. I· cb not oonn the need of fun.els :for relief fron sto.rvn.tion or niscry or wa.nt. Thero hns "uoon, o.nct still is todey, n trencndous need for relief "..broa.c:1,, in plnccs like Greece, Polcnd,. Ifun~~ru-y, Itnly, .l1ustrin n.nd Chinn. :,ut the r,rr.nt of relief ta such countries is not intondod, D liko the intornr>,tionnl invostnont of cl".:"'i t!",l, to bo (1irootly ~reductive; it is dcsirned rn.thor to let tho pooplo of such 0 ,, countries rmct the nininun roquirencnts for o.ctunl su11sistonco. Intorna.tiono.l invo.stnont stn.rts whore intornr.tionol relief lc.·wos off, at tho ~0i11t whore it is cconor.1icr-.lly Soun.cl, 'both fron tho stnnclpoint of bo:rr-owcr nn,"'.. lcndort to utilize foroi{+l I . cc.1:ii to.l for tho restorntion or dcvolo11nont of :-:,-:rocluctivo f~cilf.tios. Relief is only n. ter.r;lornry stnp-r~nJ?• Lonr.~tern recon., struction nnd develo~nent ~oquires long,,,-torn cr.y~tnl investooni in cconor.tico.lly sounc1. nnc1 ~,reductive :i2.'0jcots. Qn r.n intcrn:1tiono.l sea.lo, such invostnent is obviously tho :f'uhetion of privnte cn.:7i tc.l in tho cry:i t!",l-oxportinr: h.o.tions. 0 It wo.s 11rccisoly been.use of the d.osirc.1 tho.t ::_)rivr.te cn;_)ito.l :JO m:i:-:1.,~~od in all c~:vitr.1-c~;ortin{': no.tions fo:r intcr- no.tionnl invcstnont th~t tho Intcrnntional :Jnnk for Roc0nstruotion n.nct Dovelo:::mont wns fnrnecl. l S!:",Y this bccnuso the Intcrno.tiono.l JD..nk is ·:~rin::i.rily n. r.iochnnisr.1 whoroby }Jrivnto invostncnt funds in tho cr.:,i tc.1-oXJ.~'Jrtinr: nci,tions - t'o::1;;ornr:i,ly this r.ica.ne predor.iina.ntly tho Uni tod St['.tes - n,':cy' be. nad.o nvnilr:,;blo nt ren.sl')nn.blo cost for tho rostor!'.tion l'..ll('!. cl.ovclopncn~:. of tho productive crivucitios of the co.?it~l-ioporting countries. Tho sir,nificc.nce of tho Jn.nk is thnt it :10.kos such invostnont of :irivn.to co.ri tcl !"'Ossiblo bocnuso, thrnU{",h tho socuri ty uff or11.od by tho on:_"' i tnl sub scri1:itions of the :Jnnk's no!1bcrs. it nininizos tho risks of intorno.tionru. finnncing :po.rtioult:1.rly C\S they o.ro ~"'resent toclo.y. The l)m,Jt f orr.is o. sort of so.f'e briclr;e ..... snfc so fc.r as tho investor in its securities is 0 conoornccl - for :-,rivn.tc ea;:-:itnl t,; novc int·o tho intorno.tiono.1 field. I woulcl like to OX...'1.:'.lino this c-inco~7t with you n. li ttlo norc closely, since tho role of tho Intcrnn.tiona.l Jnnk h.o.s not c.lwo.ys been clol'.rly understood, Mnny ::_Jcoplo thin.'lt of it ri.s ti bn.nk with oir,ht 'oillion r1..ollo.rs in its till c1ntributod by tho noi:1bor Go·,;rornnonts rintl nvnilr.°Jlc to lone".. to o:tJ¥ n:--.tion which cnn · clooonstra.te 0 77 7 I r:rr Fi -7- its need for func'ls~ Anc" :100:,lc wonder why !'. Jruik with o.11 this c[',:ji t.~l is not tonclin~ to ri.11 tho needs of tho worlcl. without nccossi t,:,,tint: further cru.ls on tho Uni toc'l Stn.tes Con.··ross .• In tho first rile.co, the cal')itnl funds of the :)r,.nk Jnid. in or to be. :,rd.1. in b;y- tho r.icnbor Govornnonts o.nount to only 20% of the Jr,111-c•s ,toto.1 s\l.bscfiboc'l cn:~it.1.l, or n:J'.l:'lroxir.m.tcly $1,.550,oootooo; tho rcr.10,inint~ 80% or tho subscri:Jtion of so.oh r.1onber is su:)joct to oru.l only if needed to noot the oblign.tions nf the Jank. It is not nvr.iln.blo :for lonc:.inr, purposes. It is there :reo.lly enly M n.n encnurnr:cnent nnd ah incluccr.1cnt to others to invest. I In the second. 1,lnee~ nn'"°!. this is r.iost if.'l:.;ortr-nt~ of this $1,.5.50,000,000, ,.only sooc $'725,000,000 is rc:):rescntod by United St,:,.tos d"llnrs; tho rcr.1ri.i11a.or is ro~1roscntocl. by tho loc,'."..l currr:mcios of the vc.ri -.us ~cr:ibcrs other thrui the Unitcc'l Stntcs """" pounc'ls, frrncs, kronors, ;)osos, r.nd the like. Only n rclc'.'l.tivcly smll ::1rtion of this '-thor f.l')noy, co11tri1)utocl. by the foi:r other countries which we tor.ey in tho 1,0si tion of C.'.",.~,i tn.1....o.x:,ortcrs, is ir:u-.1eclirttoly a.Vr.ilc..blc for londinr,· :,'llr:'.'OSeSe Moreover, tho nccc'l nnd tho cl.csiro of pr;:,.cticn.lly nll :;otc1ltir..l ':)orrowors is :1rinr,rily for c1./'Jllnrs. The :ir.nk nus t • tho ref ore, look for its lcnd.ine func1.s ::n.rtly to this $72.5,000,000, '!:'ut :::rinc,rily to tho snle of its securities in tho :7rivr,tc invcstr:iont r.1m·kct, :procl')ninnntly the Unitcc'l Str.,,tcs Mnrlrnt. Most of tho Jnnkl s l/'Jnns, in other wor('ls, will bo r.m/1..o ,,ut of fun<:ls 'bor.rouod by it frm:1 ~_)rivntc investors. [U').rl ~ out of fun,ls contributed 'by tho r.10:r.ibor 00vernncnts. The :Jr.m.l{ will hr,,vo no hos:i tr.i.ncy in lcndini!'.; its 0wn funds. It h11,s ovary intention of do int: so for n nun'bor rif rcnsons. · Jut those who n.rc rosiymsi'Jlc for tho or{":Mizr,tion of tho Jnnk, I think wiscljr, so nrrr.nr~oc't it thnt the Jn.nk is forood to rely on ::,ri vr.tc 0111:i tt:i,l for its cluly sr.1.for:u.[',r~cd r.iajor oror ....tions. In tho thirc1. l)lr.ce, the ::lnnk' s funds arc not nvn.ilnblo for lonns sir.r~ly u:1on dononstr.,tion of need by tho fl,p:)licnnt country. To tho contrary, lonns cnn rinly bo nn.dc if tho :Jdhk is sc.tisfiod thr..t tho ::iro.joct OT 1::i."or:rm.:1 to be finnncec1. is ccononicru.ly sound in tho sonso th::i..t it will rnisc tho lovol of :;;ror1..uctivity of tho borrowinr. countey, m:i,1. thnt tho l)ros::_,octs of re::;:,",ynont rcro such as to ori.ko the loa.n n. :,ruclont risk. You or.:,y well ask why, if tho J,n.r.k nus t roly on tho ~1r:i.vr..to inves~nont ::mrkot for nost ,1f its funcls, nnc1• if it Cf'.n tn.ko only 1,ruclent risks, there \·ms ony necessity for its ostri,blishnontt \·1hy, in other \·ror,ls I wns tho jo'b not loft entirely to the invostnent r.m.rkot? "', .. .... -~ 8 - The basic answer is th..'1.t, in this transition period after the WUI\1 the needs Jf Europe nnd of the Far ·East to reconstruct productive facilities ravaged in the war, as well as the needs for developing the productive resources of the un1erdevelope1 areas of the world 1 are so lari~e th.."..t the necessary financing would sir.i.ply not be available in the private I:k."1.l'ket without sooe forr.i. of effective international guarantee such as th~t which the Interno.tion~l Jank affords·. Countries which r.iit~ht readily ro.ise 10 or 20 or ,5() oillions of dolla.rs in the private nttrket. need 100 or 200 or 500 r.iilliori. Ev:en thoui,-:;h their credi.t rating is good 1 · the suos required are so lart;e that private investors are unwilling to provide thon without tl).e adii t ional security afforded by the 3a.nk. Apo.rt fror.i tho consideration of the size of th.e investr.ients·, another cler.i.ent is the uncertain poli ticn.l fo.ctor·s which now pcrva-:le the world scone·. I take it that the 3t.nk should. not hold bo.ck fron r~antinr~ .loans until the whole political scene unfolds. 3y the influence which the availability or' long-tern CO.J)ito.l nay have in stD.1:>ilizing oconor.lic conditions; it is hoped that the 3r.mk my r,lay a part in helping to croate a hec.lthier p~litical scene~ ~he loa.ris of the :Jr..nk will 1 as I lm.ve stated~ be oude ily out of funa.s borrowed by the Jn.nk fror.i private investors~ • .i!le en.pi tal su'Jscriptions of the ner.i."Jors of tho 3nnk, whether 1:,aid-in or on co.11; will serve as security to those investors enabling ther.l to apply thoir funds to intcrootio~'ll investr.ient,' through the nodiur.i. of the Jank, with the security of the BO% call on the r.1en,)or governnonts as a protection. Jeco.use of this sane security factor, and because it is not prinarily a profit-seeking institution, the ~~nk will Je able to.Ck'lkc loans for projects Whicht thow;h constituting r;;ood risks, are not attractive enough to secure puroly private fi:nnncing. A further reason for the estaolish?:lent of the Jank was · the recognized necessity of avoiding the nisdirection of inter- national invostrient. As the experience of the United States in the · 1920 1 s nononstrates, such investr.ient, without guidance, my all to.o easily lose its waytf 3y reason of its ch..'1.racter o.s a pu'blic inter- national agency, the International 3o.nk is in a position to secure inforna.tion, both·with rosJ:lect to the econooy of tho narrowing country and with respect to world econonic tron1s generally, which is not available to private investors~ Such inforna.tion is inva.l~a.ble in appraising the r.1erits of proJ:)osed projects and. prograr.is and in assessing the risks wh,ich thoir financing involves, Further- r.iore• '1:>oca.use of its charnctcr as a public interootiol'l!',l E',f°\ency, rather thau a siT.l!)lo lew'ling n.r-;ency, the :Jank is in a. position effectively to supervise the oxpencliture of the proceeds of the loans which it ,-;;rv.nt s, o.nd to r.iainto.in contJJ.ct, oven nftcr the :period of dis"Jursenent w with ccononic dovolopoent s and trends in • - 9 - the borrowing countries •. Finally, since the Jank is not prinarily a profit-r:m.king institution, it will not "bo su1)ject to thG tenptation of encouraging excessivo,·or otherwise unecononic, borrowinG by its ner:fJor s. In the long run, however, intcrnutional investnent of capital is prinarily the function of the private r.mrkot, not of public agencies. The founrl.ers of the Jank recognizod this when they wroto into the charter of the Jank thc'l. t one of its fun:fanental purposes is to pro.1:1ot9 private foreign investnont, and thnt, to this end, no loan nay JO tk'l:le "by the J::i.nk when tho loan is other- wise available to tho borrower in the narket on reasonaJle terns, Moreover, tho ::Jn.nk is enpowerod to assist private crq:ital :Jy its guarantees of and participations in private international loans. Indeed, the degree of success of the Jank 11ay well 'Je in inverse ratio to the lenr;th of tine its services aro urgently noedod. The t';I'eator tho contriJution of the Jank to the croation of conditions of econonic stability and prospori ty throw;hout the world, the sooner can JJrivate aeoncies play their traditional role in the lJrocess of interna. t~onnl investrient. Jofore I close, I woul(l like to say a few worc1.s abr)ut two questions which frequently are raised in connection with the Ori;anization of the 3onk. Ono is· whether tho Jank will be unduly influenced 'Jy polit.ical q_uesti0ns, ancl the other is whether the representdion of :::iotontial 1:Jorrowors on the Jank1 s Joa.rd of Executive Directors w:l.1.1 result in ir.i!'!rovident lending. The Articles of the Jank provide expressly that loans sbnll only be nade for productive 2 mr1:,oses - and by several other provisions which restrict the char.~cter of tho loans which can bo nado, political loans as such o.re do;finitely excluded. IJ:he Jank need only follow its nanr1.atc anrl act in tho inclependent r:ianner which the .Articles clearly contonplate to insure that no purely political loans are nacle., ;rt is thG firn intention of the aclninistration of the :'.:.nk tho.t that nnnrl.nto "be followed, Having so.id this and not ')y way of hedging the sif;nificance of what l • have said, I wish to ad.:i. this com.1ent in or<'ler to ::io realistic. The line "between politicrcl an:l oconor.iic is not aiways sharply d.rawn,- We all kno\f political conditions c0,n affect the econonic and vice versa. What I take the nanew,to of tho Articles to ~e is to judge the loans which nre nade in the l:trJit of all circunsta.nccs which bear upon their proc.luctivity and the accon1Jlishnent of the purposes of the Jank as they are defined in its chartez,, We can 1 t and won•t r;rant loans in order to accon:,lish political o-"bjectives; we can ~.ncl will ref1J.1iii1 loans, where tho political uncort[Li.nties are so great as to r.1ako a loan econonically unsound, • - 10 - • So fnr ns tho Exocut1vo Directors nrc concerno1t it is true thnt n nur.1'.Jor of then rq,rosont potentir.i.l ')orrO\rnrs, )ut n. 1 controlling nun'Jcr ·lo not, Tho Directors net only Qft.:;r a favorn')lc reconnen".lnti0n for a l0an i<3 no.:ie ".Jy the r,,clr.1inistrr.i.tion; in fact, tho charter of the 3'1.nk forbHs any loan 'Join{; rnvlo th1.t is r1.isaJ)::_,rovocl 'Jy a lon.n conn'cttoo which is con:,osocl, in !?ractice, of tho officers of tho :Jm~.k. Tu.rthornoro, it hns 1 )oen ny OX;;Orionco, after a very short tine thus far with tho Jc..n>.:, thnt tho Directors h.'1vo every 'losi:ro to ,i,ct f',S an o::ijoctivo )011.y, consci0us of their 1 rosponsDili ty for tho su,Jcoss of tho Jn.n1'.:. .. They n.ro r.1on of ''.istinction, nttainnonts rm·':. self rosriccto Thero is a sense of collective rcs!:;onsi'J.ili~y anonr; tho Jo::i.r-l which no..y 'Jo one of tho r.10st inportnnt fD,ctors in the r1..ovolo1)ncnt of the Jn.nk anr1. the fJart that it will ::_,lay in tho course of its opcr<1.tions. If tho atti tu,10 of tho r.1cn"'.Jors '.Jf the :.:ior.rc1.. of Directors is in°1ic,,ti ve of tho state of nin,1 of tho :-.1cn".Jor coi:..ntrios, the:ro will 'Jo clovclo1)od m.1ong the r.1on'Jcrs a sense of co-rosp'"'nsi'Jility for tho oJli.:-;n.tions to tho :Jank. If this 'bo the ens:;, wo J:'k'l,Y fin~l th£1. t there h-'1.S "Joon intro·:..uco,l into tho field of intorn::itionnl invcstncnt n. nost effective stn.1Jilizini; factor• This !:?i.tti tu,lo r:10..y tnY-o tho forn of the strictest n.dhoroncc ·)y tho ')orrowor to its own o')li:··r,,tions on the one hrtn1 nn''L n. collective effort on the nart of the :oen1)ors to soc that no r.1cr.11.Jcr finds i ts0lf in the ~?osition. where it cnnnot ncot :-,,n '.)Jliq1.tion to tho Jan'.c. Tho contribution of tho :...:n.nk to tho cro-'.'..tion of con1Utions of econor.:iic hcn.l th in tho worL'. cnn ')o t .::,.nr1.. I s incoral~r hope will 'Jo, sii·;nificant. Tho pro luctivo rcs.,urcos nrr-1. f.,,,cilitics, tho 0 trn.incrl n.an;_)owor, tho will to :;_1ro'luco, ::ire nll ,?resent in large nonsurc j,n tho worV. toc1ay. Whnt is neoa.c.:i.. are tho rnw natcrials ancl cn.J?itc,l equipnont for reconstruction nncl r1.cvelopnent. The ::::H1k1 s loans, to tho extent th::i.t they :·.nkc such raw r:in.tcrials nncl capital cqui:1..mcnt l'..Vaila"'.Jlo to tho borrowing countries, will incrcnsc their level of :;_1rocluctivi ty nncl, n.s a direct result, will servo to pronote tho lon,:;-rc.nr:;o mln.nce1 t';I'owth of intcrn."tion.nl tr1:vle. We 1 r.m.st nov8r suffer the r:.olusion, whether wo 10 :Jorrowor or lenclcr, however, th..,.t loans can clo it all; in,'Lccrl, they C[1,n clo only a srl[',11 rx1rt. :iut poo::;ilos who contri":uto tho nn.jor olooonts to their own recovery ::lo ,".osorvo such ~10lp ns cnn 'J0 .-~i ven thcr.1 in the foru of pror"..uctivc C!:.pi tD.l fron n';iron.c1. If we can 1Jrinr,; such :?eo1ilos and cn1,i tal to,:;cthor, wo nny hel:p crento ri, '.Jotter worHL oconony anc1, if we clo, it Nill represent [';, ln.rr;o step forw['.rc:. town.r-:. the ,;o.i.ls we nll seek - stn.:)ility, :pros 1)ority, pror-;rcss nll the han:lr.1c"1.i-lens of peD..COi. •