ANNUAL ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK, TO THE BOARD OF GOVERNORS, SEPTEMBER 12, 1955 Let me begin by expressing my thanks the growth of private enterprise and invest­ for the hospitality being shown to us by ment. We will be discussing IFC informally our host, the Government of Turkey. And later in this meeting; but let me report now next, may I join your chairman in extending that the establishment of the Corporation is a cordial welcome to the Governors of clearly in sight. After examining the char­ Afghanistan and the Republic of Korea, rep­ ter the Bank submitted to your governments resenting the two newest members of the earlier this year, some 50 countries have Bretton Woods institutions. expressed their intent to join IFC. The two largest prospective stockholders-the United We stand here between two continents, States and the United Kingdom-have al­ and I think that we stand at a kind of bridge ready completed the legislative action re­ in time as well. The postwar era, character­ quired; and other countries are taking ized by emergency and crisis, lies behind us. action. Looking back on it, we can see that it was, after all, a period of great accomplishment. Our hope is that we can bring the new Looking ahead, despite many stubborn dif­ institution into being by the first of next ficulties that are all too apparent, we have January. But the timing, as I am sure you reason to think that patience and persistent realize, will depend on your own govern­ effort can make the coming years a time of ments. Further steps are needed to attain new well-being. the necessary minimum of membership and The Bank, as it enters its tenth year, capital-that is to say, 30 countries and sub­ is going forward in the same spirit of ex­ scriptions amounting to $75 million. Let me ploration and innovation that has marked urge you, who have spoken for the Corpora­ its life up to now. Against the always press­ tion so eloquently at these Annual Meetings ing problem of how to raise production and in the past, to work with equal zeal at home standards of living, we are moving in new, for early action by your governments. Once and we hope, constructive ways. I shall men­ the necessary action has been taken, the tion four of them: Bank, I can assure you, will for its own part move to put IFC into operation without Since we last met, long strides have delay. been taken toward the establishment of the International Finance Corporation, an affili­ Let me next mention a familiar and ate of the Bank, which will work to promote fundamental problem-the problem of how [5] to increase the skill and efficiency with which The third development in the Bank that available resources are applied to economic I want to mention is an effort to develop an development. This is a matter with which information service which we hope will help the Bank is constantly concerned. It is one both lending and borrowing countries to to which we are now taking another and make better use of international credit. The new approach through the Economic Devel- increased availability of international credit opment Institute, a staff college for senior is a highly welcome development of the past officials, which we have established with few years-especially welcome, I may say, financial assistance from the Ford and when it has resulted in private capital going Rockefeller Foundations. The task of the abroad. Up to now, part of the credit ex- Institute is of real importance: it is to help tended has been offered, not primarily at the less developed countries to improve the private risk, but at the risk of governmental management of their economic affairs by institutions established to promote exports. affording top administrators an opportunity This year, as I did last year, I want to to broaden their knowledge of economic express to you my concern over instances development. in which the use of medium term capital Our ambition is for these officials to has been pressed beyond its proper limits. return to their posts with new appreciations In fact, as you know, under the goad of of what kinds of policies and programming, export competition, there have been too what kinds of practical action, are likely to many cases in which credit has been offered make the best contribution to the economic at medium or even short term to induce development of their countries. We hope, purchases of capital goods which can only too, that the Bank itself will benefit from be amortized at long term, and for projects the interchange of ideas and experience that whose economic merit has not been carefully will take place between the Bank staff and appraised by either the lender or the bor- the participants in the Institute. rower. As a result, some countries have so heavily committed their foreign exchange to The Institute is now getting ready to medium and short term debt as to seriously offer its first course of study in Washington. diminish their capacity to attract the long We received many more excellent nomina- term investment needed for steady and suc- tions for it than we had places available. cessful economic development. Of the 16 candidates selected, nearly all have The extension and acceptance of credit had wide experience in dealing with eco- obviously demands the exercise of prudence nomic policy, and all hold important posi- on the part of both the lender and the bor- tions in their governments. rower. One thing that makes the exercise difficult, as I mentioned last year, is a As you can see from the prospectus we vacuum of information about how much in- have issued, we are asking to have nomina- debtedness is outstanding. In these circum- tions for the second course by the end of stances, neither the prospective lender nor this year, so that candidates can be chosen the prospective borrower can assess the well in advance of the start of that course capacity to service new loans. in October 1956. This time, we hope to take a larger number of officials, possibly twenty- The Bank is now engaged in an effort five. How useful this new Institute will be in to fill this vacuum at least partially. The any particular country, I want to emphasize, Governments of 14 major exporting coun- will depend largely on the caliber of the tries have agreed to communicate to us, candidate put forward. These nominations every three months, information about are therefore an important matter, and one medium term transactions to which they in which I urge the Governors to take a are a party-loans, guarantees, insurance, direct interest. funding arrangements and the like. On the [6] basis of this information, the Bank will be These are new developments in the able to total at least these categories of Bank. I certainly do not mean, however, that medium term debt, where the risk of lending this account of them should obscure the oper- was considered too great for private inter- ations we have been carrying out in the past ests to carry without governmental assist- year. The Annual Report you have before ance. you covers one of the most active periods in the Bank's history; and one in which some This collection of data is by its very of the encouraging trends I mentioned when nature experimental. The information ob- we last met have continued to run strong viously will not cover all capital transac- and deep. tions, and experience will be required in interpreting it. It will not be published; The Annual Report records more lend- nor will it be divulged except to the govern- ing than in any other fiscal year-$410 mil- ments concerned. It will enable the Bank, lion equivalent. Since the end of the year, on a confidential basis, to provide informa- this pace has been more than maintained. tion from which creditor governments may We have made 12 additional loans, amount- be able to gauge trends in the medium term ing to $110 million. Our gross total of com- obligations of borrowing countries and from mitments, since we began operations, now which the government of a borrowing coun- amounts to something over $2,400 million try can itself make a better assessment of in 40 countries and territories. the medium term demands facing its own One of these latest loans, I am happy resources of foreign exchange. In short, it to say, was made in Lebanon-the first to is my hope that the Bank's collection of be made in a Middle Eastern country since information can help improve judgments 1950. The difficulties of developing and about whether it would be wise to extend or financing projects in the Middle East have accept new credit in the amount, on the long been a source of concern to the Bank; terms and for the purposes suggested. If it but they have not kept us from working in can do this, it will be performing a service the area as helpfully and as persistently as of great importance to lending and borrow- we can. I am distinctly hopeful that this ing countries alike. recent loan will be followed by others in the Finally, let me mention that the Bank area: in fact, we have now informed the is watching the subject of atomic energy Government of Syria that we are ready to with interest. From last month's United discuss the financing of several projects in Nations atomic conference at Geneva, the their country. world caught a glimpse of the work being Disbursements to borrowers amounted done to turn this awesome force to peaceful during the year to $274 million. The growth and constructive use. This was a startling in funds available for lending exceeded dis- and exciting glimpse; at the same time, I bursements by more than $100 million, and think it taught us that the atomic revolution was greater than in any fiscal year since is by no means just around the corner. The 1947. Bank believes, however, that it should keep itself informed of developments even in this Repayments, and especially prepay- pioneering stage. For that reason, we have ments, of loans accounted for more of this recently appointed an atomic energy adviser, than any other single source. The Nether- who is present at this annual meeting. He lands made two prepayments totaling nearly was among the staff members who repre- $110 million; and Iraq repaid in advance sented the Bank at the Geneva conference, some $6 million, the entire balance due. and he will continue to keep us acquainted Nevertheless, we continued to rely on with progress in what has been well called the capital market for most of our acquisi- "the pacification of the atom." tion of new loan funds. A striking feature [7] of the year was that the Bank, for the first relieve our member governments of any of time, raised more funds through the sale of their obligation to let us use that capital borrowers' obligations than it did from the for the purposes for which it was paid in. issue of its own bonds. Up to now the full 18% of only two coun- tries, the United States and Canada, has We sold nearly $100 million of maturi- been made freely available for loans to any ties from our loans-some $70 million from borrower and for purchases anywhere. portfolio, another $29 million through the Many members, including some who have direct participation of private investors in released their 18% "in principle," have im- our loans at the time they were made. The posed conditions which prevent its effective total was nearly three times the amount of use. For example, some members have put any previous year; and 99 per cent of it was conditions on the rate of disbursement of sold without our guarantee. their releases or on the countries to which This greatly increased investment de- their releases could be lent, or-most com- mand for parts of the Bank's loans was monly of all-have limited the use of their accompanied, I am glad to say, by a willing- releases to purchases of their own products. ness of purchasers to buy longer maturities than in the past. Investments of five-year Tied releases, in my opinion, have the same defects as tied loans. They are cer- maturity have become increasingly common, tainly contrary to the spirit of the Articles and in the year just closed we sold maturi- ties up to 10 years. Still more encouraging of Agreement. The Articles did recognize was the fact that we were able to inaugurate that the rate at which releases were made a new kind of operation in combination with available might have to be regulated, to pre- the capital market. We made loans to Bel- vent an undue impact on the balance of gium and Norway at the same time that payments and exchange reserves of the re- Belgian and Norwegian bonds were being leasing member. But it was certainly never successfully offered to the public through contemplated that the releases would be used groups of underwriters in the United States. as an instrument of commercial policy. We are looking forward, I may say, to The Bank is entering its tenth year of further joint operations of this kind. operations. Production and income in many Record repayments and sales of loans countries are at record levels; the reserves made it correspondingly less necessary for situation has substantially improved; inter- the Bank itself to go to the market, so that national credits of one kind or another are we offered fewer of our bonds-some $88 being extended by member countries with million equivalent-than for some years increasing freedom. Surely the time has past. All of this was sold outside the United come for member countries to give the Bank States. During the year, we made our first effective use of its paid-in capital. offering in the Netherlands, our second in the United Kingdom and our third in Can- There is one other financial aspect of ada. In an unprecedented operation which our operations that I should like to report I mentioned at our last meeting, we placed to you. At the end of the 10th year of Bank $50 million of our dollar bonds in 23 coun- operations next June, the Articles of Agree- tries outside the United States. And in the ment, as you know, give the Bank the option last month, we have sold a second successful of raising, lowering or even of abolishing guilder issue in the Netherlands. the commission that so far has been required on the outstanding part of Bank loans. This The availability of funds borrowed in matter has been carefully considered by the member countries, however, does not lessen Executive Directors, and they have decided the importance to the Bank of having the to leave the commission charge where it is, full use of its paid-in capital. Nor does it at one per cent. At this stage of the Bank's [8] own development this decision, in my opin- and the Bank made this staff member avail- ion, was undoubtedly right. able to serve as the Institute's first director. While I have spent some time here dis- In Mexico, we continued to give assistance cussing the Bank's financial resources, the to a study of future electric power needs Bank believes as strongly as ever that eco- and of the ways in which the required expan- nomic development and the raising of living sion of power supplies can best be financed standards do not depend simply on the avail- and carried out. To Colombia, we sent a ability of capital, still less of capital from mission to study the development possibili- abroad. Economic progress depends on the ties of the upper valley of the Cauca River. effectiveness with which nations use all The Governors will recall the circum- their available resources; and the Bank has stances in which the Bank became associated therefore continued, at the request of its with the delicate and complicated question members, to give advice on many different of the irrigation use by India and Pakistan aspects of development. of the Indus system of rivers. The initial In fact, this kind of collaboration with discussions between the two parties, in our members was greater in extent and which the Bank participated, were held at variety this past year than ever before. the technical level. Much valuable work was Three general survey missions finished their done, but no real progress could be made work, on Nigeria, Malaya and Syria; and towards a settlement of the main question their recommendations for the formulation involved. The Bank, therefore, felt it in- of programs of development were given to cumbent to put forward, itself, a proposal the governments concerned. for a division of the waters on which a comprehensive irrigation plan could be A general survey mission was organized based. In the autumn of last year, both and sent to Jordan; it has now returned to Governments agreed to a resumption of dis- Washington and is preparing its recommen- cussions, with Bank participation, on a dations. To give continuing advice on de- without prejudice basis, and taking as a velopment programming, the Bank increased starting point the division of the waters the number of resident representatives it proposed by the Bank. These discussions maintains in member countries; it added are continuing, and continuing, I am happy representatives in Guatemala and Honduras. to say, in a spirit of cooperation and good- In Ecuador, the Bank helped to organize and will. A modest success has already been recruit staff for the National Planning and achieved: the two Governments, with the Economic Coordination Board. Staff mem- good offices of the Bank, were able to work bers also assisted the work of the Plan out earlier this year an agreement govern- Organization in Iran, and the Bank agreed ing the use of the waters during the current to recruit experts for employment by the crop season. I am sure that all of you share Organization. my hope that this activity, on which we and In a number of countries, we began or the two Governments have spent so much continued assistance on more specialized time and effort, will bring about an agreed problems. At the request of the Government settlement of this issue, not only because the of Japan, a mission studied the Govern- issue is of vital importance to the economic ment's agricultural program and made sug- future of the people of these two member gestions designed to lead to further increases countries, but also because a settlement in production. Another agricultural mission would remove one of the most serious causes is now preparing recommendations for the of friction between the two new nations on Government of Colombia. In Ceylon, a the sub-continent. member of the Bank's staff helped to organ- In all, it was an eventful and productive ize an Institute of Scientific and Industrial year in the work of the Bank. The years Research to improve production techniques, ahead, I believe, can be even more productive [9] for the Bank and its member countries. At While much more remains to be done, many the opening of these remarks, I mentioned countries have begun long-range efforts to to you the progress that has been made since increase the competence with which public the end of the war. The decade, we can now affairs are administered, and to establish or see, has been more than a period of recovery, improve essential public services. more than a time of reversion to what was normal before the war. For much of the The very urgency of their task has also world, it has been a time of great economic sometimes driven governments into errors. expansion-greater, in all probability, than One of the commonest of these is the failure any 10 years of the past half-century. to reconcile the conflict between the demand for a rising standard of living and the Progress, I grant you, is never fast necessity for reasonable economic stability. enough, but we can take encouragement Economic expansion can all too easily bring from the results achieved since the end of about monetary inflation that is fundamen- the war. And there are reasons to believe tally the enemy of economic development, that progress can continue. While there and in too many countries, unwise economic certainly will be fluctuations, the amount of policy has allowed it to do so. capital available for investment will, I think, over the long run continue to grow appreci- Urgency also drives governments to try ably; and the Bank itself has seen many to carry out activities that could more use- instances of the quickening interest of inves- fully be performed by private hands. I have tors, both domestic and international, in especially in mind the ventures that many development opportunities. governments are trying to carry out in the field of industry. Industrialization is an The peoples of the underdeveloped coun- essential part of economic development; but tries will continue to press more and more in underdeveloped areas, it is handicapped strongly for better ways of life. Clearly, by a weakness of entrepreneurial tradition, what was tolerable in the past can no longer by a lack of operating experience and by serve the needs of the present. This is mani- a shortage of private capital willing to invest festly true for techniques of factory and in industry. These circumstances, under- farm production; but it is no less true for standably enough, have led governments the way that individuals and groups of indi- themselves to establish and operate indus- viduals think and act. Those persons favored trial enterprises. by wealth, for instance, will have to recog- nize more and more that position brings Yet if the real benefits of industrializa- with it responsibility, and that the ways tion are to be obtained, I think that govern- immediately at hand for discharging that ments should undertake such ventures, if at responsibility are to open their own lands all, only as a last alternative and only after to the plow or to invest their own capital a full examination of other alternatives that in production rather than speculation. exist. And even in cases where a govern- Among political leaders in power and out, ment may go so far as to start an industrial there needs to be a growing willingness to enterprise, I think every effort should be put economic development above the level of made to put the venture into the hands of factional and partisan politics. private capital and private management as quickly as possible. On the governments of the less devel- oped countries, the times exert pressures For rare exceptions do not disprove the that are particularly great. Standstill gov- often illustrated rule that it is not in the ernments in the past were both a cause and nature of government to act with the flexi- a result of standstill economies. But today, bility or the attention to business considera- to achieve a rising standard of living also tions that is required of good industrial man- requires a rising standard of government. agement. And-successful or not-so long [ 10] as the enterprise stays in government hands, Perhaps the greatest disadvantage from it does not stimulate the growth of similar state ventures into industry is that they will enterprises, because private investors who divert resources and attention from funda­ could finance them are not willing to try mental tasks which, in the underdeveloped to compete with government. The net result countries for the most part, are either going of these state ventures, more often than not, to be carried out by the government or are is to restrict the growth of production-or not going to be carried out at all. Govern­ in other words, to defeat the very purpose ment investment in industry means corre­ they seek. spondingly less investment in the basic serv­ There are many useful alternatives be­ ices-roads, schools, power, transportation, tween the government doing too much and hospitals and the rest-that I spoke of a the government doing too little. Attention moment ago. Now these services are funda­ to research in industrial techniques, studies mental not only to industrial development of the industrial market, tax incentives, the but to all development. They can open the promotion of a capital market, the extension opportunities that eventually will call into of credit, or even a willingness, if necessary, play more effort, more investment and a to participate on a minority basis with pri­ greater amount and variety of production vate investors in founding new enterprises than any government could possibly finance. -all these may be useful without being self­ defeating. The fact that our times are complex, and that the responsibilities of government The leading alternative, in any case, is have grown, should not obscure the truth to see whether private capital and private that economic progress can continue with management can be found. In the experi­ full momentum only if individuals and ence of the Bank, governments all too fre­ quently underestimate, and often neglect to groups of individuals have the greatest pos­ explore, the potential of private investment sible opportunity to make their own suc­ that exists in their countries. The Bank has cesses, and for that matter, to make their sometimes encouraged and helped govern­ own mistakes. The elevation of living stand­ ments to prospect for private capital, and ards has properly become a task of first on these occasions capital has been found importance to which governments through­ in more than sufficient amounts. If one can out the world are applying their energies justify government ventures on the basis of and for which they are mobilizing their re­ the maxim, "Nothing ventured, nothing sources. It would be a sad circumstance if gained," the same maxim is an even stronger they should neglect to exploit to the full that justification for a conscientious effort to find most productive attribute of the human race, private resources. the spirit of individual enterprise. [ 11]