ANNUAL ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK AND ITS AFFILIATES 0 NCE MORE, IT IS A PLEASURE to greet you at meet as shareholders representing most of mankind this Annual Meeting. and its hopes for lives of greater security and well­ In the earlier years of the Bank's existence, these being. gatherings may have been somewhat ceremonial and For us in the Bank, this event crowns the year's proforma occasions. But when you meet now, you business. It is a time both of retrospect and pros- 8 _______________________ _ _ ,, ... ---------- pect. We have a chance not only to evaluate what of telling you that our interest rate to borrowers has has been done since we last met, but also to set just been reduced to 51;2 % -the lowest rate we ourselves in new directions. More and more often, have been able to offer since 1958. the Governors have been asked to take decisions Since the closing of our Annual Reports, the that in the end have strongly affected the character volume of new lending has continued high. The total of our institutions and their value to their member for IDA and the Bank amounts to nearly $200 countries, and this present Meeting will, I am sure, million, and IDA accounts for the larger share. Since be no exception in this regard. the opening of the new fiscal year, the Association The operations of the Bank and its affiliates, the already has extended some $110 million of new International Finance Corporation and the Inter- credits-an amount nearly as much as in the previ- national Development Association, are proceeding ous 12 months. at a faster pace than ever before. IDA has continued to lend for purposes new to As the Reports before you show, the Bank and the Bretton Woods institutions. When we met last IDA during the year committed over $1 billion for year in Vienna, the Association had just agreed to economic development projects. The Bank figure, its first financing of a municipal water supply project. some $882 million, was by a considerable margin Now I can report to you that IDA has just signed the highest in our history. More than four-fifths of its first agreement to finance a project in the field of this amount was lent in support of power and trans- education. I refer to a $5 million credit which will portation-traditionally the most frequent objects help to finance the construction of secondary schools of Bank lending. Two other facts are worth point- in Tunisia. We take particular pride in this inaugural ing out: for the fifth year, Bank lending for large- effort; and this is a subject on which I shall have scale industrial projects exceeded $100 million; and more to say in a few minutes. the cumulative total of Bank loans to industry passed The faster tempo of financial commitments by the $1 billion. Bank has not outstripped the Bank's activities in The Bank's operations continue to have the con- technical assistance to members. Almost from the fidence of the world financial community. Within beginning of our operations, we have found ourselves the past few days, we have arranged the sale of giving technical advice of one kind or another in the $100 million of United States dollar bonds to pur- preparation of development projects. This work is chasers entirely outside the United States. This is now recognized to be a special branch of Bank our seventh such issue; it is for two years, and carries activity, administered under special staff arrange- interest at 3% %. It was sold to purchasers in 25 ments and with its own allocation of funds. Since countries; the demand was so great that the issue the Governors met in Vienna, we have agreed to was oversubscribed 100 per cent. share the cost of hiring and maintaining the best During the fiscal year itself, we were able to sell, outside talent available to carry out some 10 studies without our guarantee, parts of our loans amounting in fields of interest to the Bank or IDA. And we to over $300 million. In addition, we raised $270 have organized four additional studieS' as Executing million in five new borrowing transactions. One Agent of the United Nations Special Fund. The transaction, as I was able to mention 12 months ago, scope of this work ranges from technical and eco- was the first Bank borrowing in the Italian market. nomic feasibility studies of individual projects to Three other issues were sold outside the United complete surveys of transportation, water resources States. Our last borrowing of the year was our first development and the like. issue in the United States market since February Our new Development Advisory Service has now 1960. Conditions in the private market continue come into operation. We have recruited a small good. They enable me, in fact, to have the pleasure corps of highly experienced professionals to assist 9 the member governments of less developed countries ments and to the Development Assistance Committee to take up urgent development tasks. They are avail- of the OECD, which asked the Bank to undertake it. able to serve as economic and financial advisers, par- For some time, the Executive Directors of the ticularly in the preparation and execution of economic Bank have been studying a second idea that also is development programs. Some of these experts al- aimed at increasing confidence in international pri- ready are serving abroad-in Chile, Ghana, Pakistan vate investment, namely, the establishment, under the and Thailand, for example-while others are taking sponsorship of the Bank, of some kind of machinery up interim assignments at the Bank's headquarters for the conciliation or arbitration of international in Washington. disputes arising between governments and private Our Economic Development Institule completcd parties. A working paper on the subject has been its seventh regular course this year, and has now circulated, and we are now receiving comments from returned over 140 Fellows to senior economic posts governments. I hope that you will agree with me in their governments. This year the Institute also that this approach is an interesting and promising conducted a special course in French for officials one, and that you will approve the resolution on your drawn mostly from the newly independent countries agenda specifically authorizing the Directors to study of Africa. More than 100 of the Institute's English- the matter. language libraries in economic development have I would like to turn now to the Bank's industrial- been distributed to selected institutions in our mem- financing affiliate, the International Finance Corpo- ber countries. The preparation of a French library ration. is well advanced. This is my first address as President of IFC and Nothing, I believe, is more vital to the economic I am presenting the Corporation's Report to you this progress of the underdeveloped countries than a year more convinced than ever that our member well-rounded spread of education, and the Executive countries' interests are well served by having an Directors as well as I myself have become convinced institution in the World Bank family devoted to the that here is a field in which the Bank might make a promotion of the private industrial sector. During useful contribution. We have in mind making grants the past year the Corporation made nine investment from our accruing profits to assist, in member coun- commitments totaling something over $18 million tries, economic, technical or vocational education of and organized an underwriting in which it took an a sort closely related to the objectives of the lending initial commitment of some $3 million more. The activities of the Bank and IDA. It is difficult at this money total of these transactions was considcrably stage to estimate precisely the amount to be devoted more than the previous year's investment total; to this purpose, but it could be as much as $10 mil- but what was more notable was the variety and im- lion a year. A distinguished American educator, portance of what was done. Dr. Harvie Branscomb, former Chancellor of Van- IFC has three major functions to perform: first, derbilt University, has joined our staff to advise us to contribute to financing new or expanded ventures, on the formulation of the program. in association with private investors, which are of The Bank staff has carried forward two special high developmental priority to the economies of projects which I mentioned in Vienna. It has fin- the countries where they are located; second, to ished and made public a study of various proposals contribute to the establishment or the development for setting up some kind of multilateral scheme for of capital markets in our member countries; and insuring international investments. It was not the third, to stimulate the international flow of private purpose of the study to reach conclusions with re- foreign capital. spect to any such scheme, but rather to illuminate IFC has been able to operate this year with greater the issues involved. It has been given to govern- flexibility than previously because of the change in 10 the Charter which the Governors approved last year markets, and promoting the international flow of to allow the Corporation to invest in equity. An IFC capital. investment in a Spanish manufacturing company this IFC's pipeline is now filling up. Since the end of year is an example. IFC not only was able to make the fiscal year the Executive Directors already have an appropriate loan but also, for the first time, to approved new investments of more than $6 million strengthen a company's financial structure by pur- in countries of Latin America, Africa and Asia. The chasing its capital shares. This was the first time that preparation of other investments is well under way, IFC acquired an equity interest as part of the and I am confident that this will be the Corporation's original investment commitment. Private capital from most active year since its founding. I want to add two financial institutions, one in the United States that Mr. Martin Rosen, in the new position of and one in Germany, was attracted to the Spanish Executive Vice President, has displayed the leader- investment and participated with IFC. ship that I expected of him. IFC also went into the underwriting business for Mr. Chairman, I want now to turn to some long- the first time. It formed a syndicate with a Mexican range considerations that affect the prospects for investment house to underwrite an issue of capital economic growth in the less developed countries. shares of the largest private steel company in Mexico. Since all of you are here today because of a con- As I mentioned, IFC's total initial commitment for cern or interest in the work of the Bank, IFC and the underwriting was some $3 million, but three IDA, I do not need to convince you of the general well-known U.S. and European investment institu- case for providing a continuing flow of develop- tions joined with IFC to take over about $1 million ment aid. In 1948, when the Bank made its 1irst of the underwriting commitment. The offering was development loans, the belief was widely held that considerably more successful than had been antici- if enough money could be found and channeled into pated, perhaps in part because of the strength of the the financing of the more obviously productive proj- underwriting syndicate, and IFC had to take up only ects in a country, economic development would be about $800,000 of its initial commitment. almost sure to follow. Experience since then has Since the close of the fiscal year IFC has made shown both that there are usually internal obstacles to development that no amount of finance alone can another interesting investment, a loan to a large overcome, and that the developing countries also textile company in Colombia. Partly because of the face external economic difficulties-namely, adverse state of the capital market in Colombia, this com- factors in their international trade-that affect the pany had been unable to raise funds from its cus- amount and kind of aid they need. tomary sources at home, and therefore turned to One such difficulty is sometimes created by the IFC. IFC was able to arrange for the participation trade policies of the industrialized countries them- of four banks in the United States, one in Germany selves. Generally speaking, tariffs or quotas do not and one in Switzerland. When the investment agree- at present unduly restrict the exports of primary ment was signed, nearly seven-eighths of IFC's $2 products from the developing countries, but there are million commitment was taken up by the six private manufactured products-notably cotton textiles- banks. This transaction linked with the company where discrimination is an important factor. I feel leading banking houses on two continents and en- considerably more anxiety about the effects of trade abled the company to avoid interrupting an expan- restrictions in the future, when we ought to be able sion program it had long planned and already begun. to hope for rising exports from the developing coun- These three recent transactions well illustrate the tries, and especially of the products of their growing three principal functions of IFC: financing high manufacturing industries. The new regional eco- priority industrial undertakings, developing capital nomic groupings of countries in Europe and 11 elsewhere are obviously one source of concern to the Many countries are finding that their capacity to developing countries. The possibility that the nations make effective use of aid is growing faster than their within these groupings may surround themselves capacity to repay. During the early nineteen fifties, with high protective barriers, offering discriminatory when external debt was still comparatively small and concessions only to countries with whom they feel well-prepared projects were few, most less developed special ties, clouds the economic prospects of those countries could still prudently accept loans at con- who feel they may be excluded. If, however, these ventional rates of interest and repayable over the groupings adopt liberal trade policies, the under- conventional period of time. But today, in many developed countries will have nothing to fear; on cases, a dangerously high proportion of export earn- the contrary, they can be certain of sharing in the ings (the prospects for which are themselves clouded) prosperity of the group's members. are mortgaged to future debt service. Our own fig- A more serious situation arises from unfavorable ures show that between 1955 and 1961, a group of movement in the terms of trade of most of the under- 34 countries, accounting for some 70% of the popu- developed countries. In recent years the prices of lation of the underdeveloped world, more than what they buy from the developed countries have doubled its total external public debt. Yet over the continued to rise, while with very few exceptions same period, the export earnings of the same group there has been a fall in the prices of what they sell. increased by little more than 15%. Clearly there is no easy way out, since in almost If the momentum of development is to be main- every case the recent decline in price reflects a funda- tained, it can only be by grants or by loans largely mental tendency for production of the commodity at very long term and at very low interest. This concerned to run ahead of world demand for it. is why the International Development Association Nevertheless, it does seem to me that the industrial- was brought into existence. ized countries ought to recognize that their own The needs of the poorer countries are great, and balances of payments have benefited from the swing they certainly are not likely to diminish over the next of the terms of trade in their favor. To give you an few years. At the same time, if foreign aid is to be instance, in one European country whose experience a real help to the recipient countries, and is not to is reasonably typical, this swing was sufficient to become an intolerable burden upon the lenders, it make the nation's total import bill in 1961 about 8% must be offered and applied as economically and less than it would have been had 1956 prices still effectively as possible. I should like to discuss one prevailed. This is one reason-and there are many factor in particular which, I believe, has a great others-why most of the industrialized countries are influence on the effectiveness of aid; this is the choice today in a much better position to increase their of the channels through which the aid is made avail- contributions to the international development effort able. than they were a few years ago. An important part of the capital needs of the less What with the continuing need for technical assist- developed countries can and should be met from ance, the implications of international trade policies foreign private sources. But, for reasons that are and the performance of the prices of internationally well known, private capital is not willing to venture traded commodities, quite sufficient complications into these countries on the scale needed. In par- have been introduced into that former simple vision ticular, capital for direct investment in roads, rail- which saw an inflow of external capital as the sole roads, and other basic services, or for social invest- prerequisite of economic progress. But one has to ments such as schools or hospitals, is almost go a stage further. Not only must there be more aid, unobtainable from private sources on any basis. if development is to continue, the aid must often be This means that private capital investment must different in kind as well as greater in amount. be supplemented on a large scale by funds from 12 public sources. The question remains: are we likely building, while parched but fertile land is left with- to get the best results if these funds are supplied on out irrigation. Economic priorities are inevitably a bilateral basis-direct from one government to confused when economic objectivity is lost-and another-or should they be channeled through, and economic objectivity is not easy when aid is influ- administered by a multilateral agency? enced by political ends. Moreover, the problem goes Realistically, this cannot be a stark choice between deeper than the simple waste of a given amount of two extreme positions-all aid bilateral or all aid money. Aid directed to a government that is unwill- multilateral. It is a question of emphasis. Like it ing to meet the real needs of a country has one con- or not, bilateral aid is an instrument of foreign sequence that is pernicious. The most obvious result policy, and mixed up with cultural ties, regional of some of the bilateral lending of the past decade loyalties and other circumstances extraneous to has been to make it possible for countries to put off purely economic considerations. The aid-giving undertaking needed reforms; because well-meant but countries are naturally disposed to direct their help ill-judged offers of aid have been forthcoming, gov- especially to those countries whose friendship or ernments have been able to postpone such essential stability they particularly value. Nor do I expect but disagreeable tasks as the overhaul of systems of them to stop stinting aid to countries they hold in taxation or essential currency reforms. less regard. I doubt, moreover, whether bilateral aid is any But I do believe that the emphasis should and more efficient as a method of achieving political ends can be changed, away from bilateral and toward than as a means of furthering development. My own multilateral aid. Bilateral aid is usually-and unfor- acquaintance among leaders of the less developed tunately, increasingly-tied to purchases of the countries does not suggest to me that they are per- giver's products. However well-intentioned a lend- sons who would be easily bent to any foreigner's ing government, it is vulnerable to pressure from purposes; they value their own and their countries' its own commercial interests to help finance the independence too highly. In any case it is clear that sale of particular goods for projects abroad, whether aid which is at the mercy of the variable winds of the projects themselves are well justified or not. And, diplomacy offers a poor basis for the rational pro- however sensible the government of the recipient graming of economic development. country, it may have difficulty in resisting offers of Admittedly, bilateral programs have been known finance, even for low-priority projects and on terms to work well, avoiding friction, furthering develop- that often are not suited either to the circumstances ment, and even garnering some political returns as of the country or the requirements of the project. well. And development aid on a multilateral basis My most serious criticism of bilateral aid pro- has not always been a success. Having said this, grams, however, is their susceptibility to political however, I would still assert that multilateral aid, influences, whether overt or otherwise. At its worst, when it is professionally equipped and independent aid is offered or exacted as a price in political bar- of political pressures, offers advantages that bilateral gaining that takes no account of the actual economic assistance cannot equal. requirements of the recipients. But even at best, The international aid organizations are objective, there is always the risk that political influences may and are known to be so. They enable a developing misdirect development aid, since they may bring in country to draw on the experience of all nations; considerations that are irrelevant to the real needs. to buy in the cheapest market; and to avoid com- I have known cases where, as a result, a splendid promising its sovereignty by regulating its internal new sports stadium has been built, while the highway affairs at the behest of other countries. An inter- system remains primitive; or where the national national organization will make aid available with airport has acquired a strikingly modern terminal the sole purpose of helping the country receiving I3 that aid. The Bank and IDA, for example, can apply instrument for the provision of aid on lenient terms what should be the real criterion-the practical of repayment. But IDA faces the imminent full merits of the particular case. Because they are known commitment of its initial funds. to have no ulterior motive, they can exert more influ- The facts are set out in the Report of the Execu- ence over the use of a loan than is possible for a tive Directors regarding the replenishment of IDA's bilateral lender: they can insist that the projects for resources. IDA now has about $765 million in which they lend are established on a sound basis, usable funds, including the very welcome supple- and-most important-they can make their lending mentary contribution recently made by Sweden. We conditional upon commensurate efforts being made estimate that by mid-1963 most or all of these funds by the recipient country itself. are likely to have been committed. This does not, This objectivity provides the chief reason for of course, mean that all of IDA's funds will actually expecting that aid can be most effective if channeled have been disbursed by then: it is quite certain that through an international agency-but there are other they will not; we would not expect to payout the reasons. Countries receiving aid from a multilateral last of our usable funds until 1965. But unless we organization to which many nations have contributed, can be assured-very soon-that further funds will and under international administration, will be likely be available from 1965 onward, IDA will not be to take a more responsible attitude toward the use able to enter into any new lending commitment after and repayment of that aid than toward aid received about the middle of next year. This is not a situation bilaterally. An international organization can also that can be ignored and allowed to drift. To do spread its net more widely than any single country. nothing would in itself constitute a decision to bring It can provide advice on all aspects of development IDA's operations to a halt. planning, based on experience drawn from many If IDA continues to operate at its normal pace, nations, including the underdeveloped countries it seems probable that it will during the current fiscal themselves. It offers a framework within which can year commit something like $500 million. This be put to good use the resources and knowledge of money will be directed only to high-priority develop- industrialized countries too small to be able to justify mental purposes, in countries whose capacity to at- the administrative effort needed to mount effective tract and repay loans from conventional sources is aid programs of their own. It may, like the Bank, limited or non-existent. There is no reason, that I be able to raise development funds on a world-wide can see, to suppose that the demand for worthwhile scale in the private market. And in the long run, I credits will be any lower in subsequent years. On am convinced, multilateral aid programs must exert the contrary, it is my conviction that the demand will a much healthier influence than bilateral lending continue to increase, and to increase greatly. Experi- upon international relations as a whole. ence has already demonstrated, I believe, that IDA I have advanced a number of arguments whose is capable of meeting a very real and important need relation to one another may not have seemed very and, in relation to this need, the original capital of clear. But in fact they are all relevant to a single IDA was obviously inadequate. But if it is to meet and urgent issue-the future of the International this need-if it is to become a principal instrument Development Association. for the development of the poorer countries, and not I have argued that more aid is needed; that, in par- just a minor gesture of good will toward them-it ticular, more aid is needed on comparatively easy will clearly require a very substantial addition to its terms of repayment; and that there are cogent rea- resources. sons for preferring that such aid be made available There is one point that I feel should be made on a multilateral basis. IDA is a major source of clear. The total amount lent by the Bank this year development aid, and the principal international was much greater than in any previous year. But 14 we cannot expect the rate of lending by the Bank to through the years has given to the Bank and its continue to expand in future years. Indeed, it may President. I am sorry that the Bank's accomplish- prove difficult to maintain the Bank's operations at ments could not have been greater; what we have their recent level. Many of the Bank's present mem- been able to do still leaves much undone. But the ber countries cannot prudently assume further hard Board itself, as a group and as individuals, has been debt without jeopardizing their future, and of about a great source of strength to the Executive Directors 20 new members expected to join the Bank within and to the Management. Nor can the Board in its the next year or two, few will be in a position to turn, I think, feel any discontent, or indeed anything service loans from the Bank. It is to IDA, not to but pride, about the men and women who serve it the Bank, that most of them will have to look for on the staff of the Bank and its affiliates. They are help. The future of IDA is therefore the most im- the foundation on which the value of our institutions portant issue that I commend to your sympathetic rests; for capability and sense of purpose, I dare to consideration during this week's Meetings. say that they are the equal of any group of com- Over the years, the Governors have made a series parable size or mission anywhere. of crucial decisions that have shaped the international Much as I shall personally regret parting from aid effort, and permitted it to meet the growing and the Bank, I think my leaving will be a good thing. changing needs of the less developed countries. I Orderly change of any sort is likely to be good- think particularly of your authorization of the crea- not because it casts away the old, but because it lets tion of the International Finance Corporation, of the in the new. Letting in the new :s important if the doubling of the authorized capital of the Bank, and Bank is to avoid becoming a fossil and to remain of the creation of the International Development a living institution. I look on my retirement as one Association itself. I believe that your approval of more contribution I can make to the future of the the resolution directing urgent attention to the prob- Bank. I believe my successor will be selected in the lem of the enlargement of IDA's resources could near future, and I shall step down soon after that. well prove to be the most important and fruitful of As you know, some changes already are being all these decisions. effected in the Management of the Bank. Next Mr. Chairman, as many of the Governors know, month, Sir William Iliff will retire. He is one of my this is the last of these Meetings in which I shall oldest associates in the Bank and, through the years, be an active participant. Before the next one, I shall one of those on whom I have come to rely the most have retired as President of the Bank. The time has as friend, critic and adviser. He is one of the prin- come for me to heed the advice of that wise poet, cipal architects of the Bank as it is now organized Horace, who said long ago: "Solve senescentem and operating; his judgment in policy matters, his mature sanus equum, ne peccet ad extremum riden- skill and perseverance as a negotiator, and his talent dus," which I translate freely thus: "When your for both official and personal relationships have made horse is getting old, be wise: turn him out to grass him of enormous value to us. He has our fervent in good time, lest in the end he stumble and people good wishes for many happy years ahead. begin to make fun of him." It is a pleasure to assure you that Mr. Burke At a moment like this, all sorts of thoughts come Knapp will continue to serve as Vice President, and pressing in. One is about this Meeting, and the will go on giving us the benefit of his extraordinary significance it has assumed in our lives and in the versatility and exceptional energies in that post. As conduct of the world's affairs. you know, Mr. Geoffrey Wilson has joined Mr. I shall greatly miss the view from this platform. Knapp as a Vice President. Mr. Wilson's first asso- Before I leave it, let me give the Governors my ciation with the Bank was with its Board of Directors deeply felt thanks for the support that the Board and, following this experience with him, I was very 15 happy early this year to be able to persuade him to and steel and concrete; it has had a deeper purpose join the staff. I am glad now that he will be working -to enlarge the riches of the earth, to give men light in a position of wider responsibility. and warmth, to lift them out of drudgery and despair, This is a time when there is a changing of the to interest them in the stirring of ideas and in the guard in the Bank. But it is not a time of slacken­ grasp of organization and techniques, toward the ing-quite the reverse. The accomplishments of the realization of a day in which plenty will be a real Bank may not yet loom very large compared with possibility and not a distant dream. what remains to be done. I do not mean this as I think I can say with some objectivity that the belittlement; what I mean is that neither the Bank Bank has made its mark. It is showing how an in­ nor the work in which it is engaged is complete, or strument of international cooperation can bring the ever should be. What the Bank has been able to do world's resources to bear on the problems that are is by no means inconsiderable; in fact, the volume of concern to most of mankind-a kind of burning of sheer physical creation-the scores of factories, glass that can kindle the fire of hope even in the the millions of acres of land, the millions of kilowatts most remote and forsaken corners of the earth. of electric power capacity, the tens of thousands of Above all, the work is still in progress, and it is work miles of roads and railroads--can only be called im­ in which we can all take pride. I wish you all success pressive. But the Bank's work is not to be assessed in your endeavors that lie ahead, in this Meeting, in terms of the building of cold monuments of stone and in many Meetings to come.