ANNUAL ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK I T IS AGAIN A PLEASURE to welcome you to Wash­ ington. And may I extend greetings particularly to level. Almost $400 million was lent out in 26 loans to 20 different countries or territories. For the first time, the Governors who are representing the two newest more lending was done in Asia than in any other members of the Bank, Argentina and Viet-Nam. continent. It is a source of pride and satisfaction to me that More than a quarter of the year's lending was these annual meetings have become the occasion for accounted for by two very large development projects bringing together so many of the financial leaders of -the Kariba Gorge power project in the Federation the world. In the aggregate, the decisions of the men of Rhodesia and Nyasaland; and the expansion in this audience-men in private finance as well as program at the great Tata steel works in India. The men in public finance-are going to shape a good deal Kariba project is the largest single project in which of the history of the times that lie immediately ahead. the Bank has invested. The Tata loan is the largest It's a privilege for us in the Bank to be able to review investment we have made in any industrial project, our work with you each year and to exchange ideas. as well as our largest single investment in Asia. Last June the Bank passed its 10th birthday. Today, At the same time, the Bank made more loans-26- after a brief review of the past year's activities, I want in the year under review than in any previous year. to divide my time between telling you something of In about half the cases the loan made this year was the people who are responsible for the record of our one of a series of loans made over a number of years first decade and dwelling a bit on the future-especially in support of the development of some particular on the important role the less developed countries segment of a member country's economy-roads in will play in that future. Colombia, power in Finland and Uruguay, railways In the year covered in the Annual Report before in Thailand and South Africa, for example. During you, World Bank lending was maintained at a high the year five member countries borrowed from the 6 Bank for the first time-Burma, Guatemala, Haiti, the Bank. I submit that in denying the Bank the full Honduras and Lebanon. use of these subscriptions many members are lagging The general rise in money rates in the world's major behind events in their own economies. I again want capital markets was a striking feature of the past year to urge them to catch up with the times. We cannot and it was reflected in Bank operations. As a conse- make our maximum contribution unless we have quence interest rates on Bank loans were raised access to this 18% capital. towards the end of the fiscal year, and sales to private The financial results of the year set a record. The investors of parts of Bank loans fell to about three- net income of the Bank was $29.2 million, up four quarters of the 1954-1955 figure. and a half million from 1954-1955. Net income has The Bank's only borrowing transactions in the year increased in each of the past nine years and we have under review were a bond issue floated in the Nether- built up total reserves of $228 million. lands last summer and one floated in Switzerland last Non-lending activities of the Bank also continued fall. In addition to the new Swiss borrowing of which to expand during the year. The second course at our the Governors have already had particulars in the Economic Development Institute starts next week and Supplement to the Annual Report, I can announce I am glad to say we have been able this year to accept to you this morning that we have just completed a larger number of candidates from member countries. arranging the private sale, entirely outside the United I am also glad to report that the Ford and Rockefeller States, of a $75 million Two Year Issue of 3Vz% Foundations have agreed to continue their financial dollar bonds to purchasers in 22 different countries. help to the Institute through 1958. Accordingly we These transactions give a continuing demonstration have scheduled a third course to begin in the Fall of of the wide international base on which the Bank is 1957, and I urge all those member countries with able to conduct its financial operations. interested candidates to get their applications in as Member countries in the last fiscal year released soon as possible. nearly three times as much of their 18% capital In July, the International Finance Corporation subscriptions as they did in 1954-1955. This is came into being, as you all know. The birth of the encouraging. I am especially gratified by the announce- I.F.C. has led to some important changes in the Bank's ment yesterday by our Chairman, Dr. Antonio management-changes which are designed to equip Carrillo Flores, that Mexico has placed at the disposal us for a future which I hope will offer increasing of the Bank the entire remaining un-released balance opportunities for the Bank to contribute to world of the Mexican 18S;{,. I n particular, 1 welcome the fact development. that one third of the amount of this release will be on Last June, when we closed the books on ten years a fully convertible basis and available to finance of operations, I could not help thinking that the Bank purchases by any Bank borrower in any supplying had come a long way since the architects drew up the country. This is the first convertible release of 18% plans at Bretton Woods. We have had a hand in some made by any of our Latin American member countries 500 reconstruction and development projects in 42 dif- and I hope that this valuable manifestation of support ferent countries since we started business. We have lent for the Bank by Mexico will encourage more of our almost two and three-quarters billion dollars and sold member Governments-not only in Latin America more than one billion dollars worth of Bank bonds. but elsewhere-to make their 18% capital freely To the men and women who made this record- available to us. We still have a long way to go before professional and nonprofessional, in every grade and the Bank receives its due in this respect. In particular, in every position-l want to pay a tribute today, for more than half the amounts of the 18% capital the Bank staff is the one indispensable asset which subscriptions of European members are still frozen or never appears on the balance sheet or in the annual so tied with restrictions as to be virtually useless to report. 7 Our professional staff numbers 235, and of these, a with an area of problems which are certain to be with large percentage are making the Bank a career. Sixty the world, possibly for generations to come. per cent have been with the Bank more than half its I would also like to pay tribute to one man in life. All of our department heads have come up particular who has left his mark on Bank operations. through the ranks. Mr. Iliff, Mr. Knapp and Mr. Mr. Robert L. Garner has left us after 9~ years as Sommers-the three new vice presidents-have, vice president of the Bank, to head the International among them, more than a quarter of a century's Finance Corporation. I think it is fitting to point out service with the Bank. the great debt we owe to him. As a matter of policy we have not followed any When Mr. Garner joined the Bank in February of special pattern of geographical representation in 1947, he and the staff faced a formidable list of recruiting for the Bank. We need trained people, unanswered questions. The Bank had made no loans; willing and able to adapt their training to the problems no method had yet been worked out for negotiating of development finance. But many of our member loans. There were no standards set; no operating countries need such people more urgently even than procedures. Such questions as interest rates and we do. commitment charges were still up in the air. Formu- Yet the staff has been recruited from 37 different lating procedures for loan disbursement and adminis- countries, representing all the major cultures in the tration still lay ahead. world. Despite widely diverse national backgrounds, As much as anyone Mr. Garner made the Bank these men and women have developed an international work. He constantly steered the Bank toward concrete, consciousness which has enabled them to operate as achievable objectives. He always insisted on estab- one of the most harmonious teams with which it has lishing standards in Bank operations which would ever been my privilege to serve. attract and keep the confidence of the skeptical private The requirements for a successful Bank officer are investor-whether a potential bond holder or a exacting. In whatever function he may be employed potential partner in our lending. Above all, he he must be versatile. He must be thoroughly conver- inspired the staff to work together as a team, striving sant with the countries he is working on-with the to see that judgments arrived at were balanced economic and political background of the local scene. judgments to which all had made their contribution. He must be able to judge the technical and economic At every turn I relied heavily on Mr. Garner's worth of a project by itself and against the background advice and cooperation. I look back on my association of a nation's whole economy. He must be able to with him as one of the most pleasant and productive negotiate-to persuade and convince the people with in my career. I am happy to know that in the future whom he deals. he will be just around the corner, devoting his out- These requirements rarely, if ever, come ready made. standing creative energies to the International Finance While we choose men and women with specialized Corporation. backgrounds for work in the Bank, we also insist on In my remaining time today I want to look ahead. men and women with a capacity to adapt their back- I want to talk about the less developed countries, not grounds to a new kind of profession-the practitioner just because they hold the key to the Bank's future. of international development finance-and I think I but because I am convinced they will determine in am justified in using the word "profession" in talking large part the future of the world. about the Bank's work. To be sure our profession is I think it is clear that a great transformation is still in its infancy; our knowledge is still fragmentary going on in these countries-a transformation which and we are constantly adding to our techniques. But historians may well regard as the most significant fact the men and women who are growing in experience of the Twentieth Century. This transformation had with the Bank are developing unique skills in dealing its beginning more than two centuries ago, when the 8 first western traders and colonizers set out to discover new stability is achieved which is compatible with the new lands and new markets. Over the decades these security and welfare of people everywhere. traders and colonizers had a tremendous impact on Let us make no mistake, economic deVelopment in the ancient societies of Asia, Africa and Latin Amer- these countries today is not just a process; it is also ica. They set in motion currents of change among an idea-a rallying cry for more and more millions people who for the most part had not experienced who are aroused against their traditional poverty. change for centuries. Here is great potential for good. If the human energy These ancient societies were rich in tradition and in the less developed countries can be effectively set in their social ways from time immemorial. The harnessed to constructive economic development, great mass of their peoples were poor in the material these areas can well enjoy an unprecedented rate of things of life; their economies were primitive and growth. static. Secular nationalism was a foreign idea to most What is needed to make good the promise of these of them. But constant and increasing contact with the countries is a recognition that there are impartial, West and its standard of living, and with the steadily dispassionate methods of planning, organizing, and growing wonders of modern technology aroused more carrying out development policy-methods which and more millions to improve their traditional lot. provide substantial insurance that concrete results In the past 15 years more than half a billion people will be achieved and that benefits will be spread in Asia and Africa have gained their national inde- broadly among the people. If national passions can pendence. But the fact of national independence has be tempered enough to give these methods a chance not yet brought the human betterment which the to work, the result in terms of world peace and people of the less developed countries so urgently prosperity is likely to be very impressive. need and desire. That challenge still lies ahead. And I think there is a growing awareness of the impor- I doubt whether any group of leaders in history has tance of objectivity in development policy in the less faced any more difficult or exacting challenge. developed countries today. But a great deal more is Economic development is a fickle process. It creates needed, and to get it we must first clear away several new problems even as it solves old ones; it satisfies myths which becloud development policy. immediate demands only to create new and larger Let me cite a few of these myths by way of example. demands. And, most important, it destroys old First there is the myth that today only governments attitudes towards life and work, even as it creates can produce economic growth fast enough and of the materials for a better life. In the less developed areas right character. of the world today the old stabilities are still crumbling Let me concede at once that there may be no as the minds of more and more millions are opened substitute for government in a great many instances to new hopes and ambitions. The process of develop- when it comes to getting development off the ground. ment has brought, with its benefits, turmoil and In most underdeveloped countries the government discontent which could thwart further development if has, and probably must have, the primary responsi- not threaten the very foundations of world order. bility for providing basic facilities on which sustained Yet we also know that economic development is growth can flourish. necessary for the kind of world in which people But it is a dangerous myth to believe that economic everywhere live and grow in peace. We know that the development is a matter for government alone. The problems economic development creates-the turmoil great and growing reservoir of human energy in the and discontent, the new hopes and ambitions-can less developed countries today cannot possibly find a only be made manageable with more economic constructive outlet if all decisions affecting economic development. The process must go on. It must go on growth are left to the state. The enthusiasm and steadily in the less developed countries until some potential contribution of every individual must be 9 courted in a successful development program. And The danger today is not that the foreign investor that means leaving a wide area of freedom for indi- will ask too much of a developing country, but that viduals to follow their own development initiatives the developing countries will do too little to attract and encouraging them to do so. him. Today the foreign investor cannot go into a Then there is the myth that inflation is a handy country unless he is actually wanted by the people of device for making development painless. I'm glad to the country. By indulging the myth that the private say I think this myth is almost ready for burial. There investor is trying to force an entry to engage in some is a growing awareness of how inflation erodes savings, sort of evil exploitation, the less developed countries destroys the criteria for judging the soundness of are cutting themselves off from one of the most investment, and plays havoc with a country's balance productive sources of development assistance available of payments. to them. The capital and skills which the private But it is still difficult to find objective thinking about investor brings with him may not be available from the practical steps needed to combat inflation. anyone else. Particularly he brings with him the skills Probably the hardest decision we in the Bank have to of industrial management-skills which have to be make comes when we feel we must suspend lending to seen in action to be learned. If a country is bent on a member country because we believe inflation is industrializing and having the benefits spread broadly undermining its credit and the vitality of its develop- among the people, it can do itself no better service ment efforts. Our action is almost bound to give rise than to seek out the private investor abroad who is to acute resentment. I will defend to the limit, however, willing to risk his capital on the chance of a fair the Bank's obligation to withhold support from return on a successful venture. governments which fail to deal effectively with By clearing away myths like these the leaders of the inflation or with the threat of inflation. The myth that less developed countries will be far along the road to inflation is harmless is dying, but we still have a long the kind of objective attitude which is needed for way to go before it is securely laid to rest. sustained, healthy growth. But when I speak of the Finally, I would like to mention the myth that the importance of objectivity in development policy, I also foreign investor today is merely an up-to-date version mean disentangling that policy from conflicting short- of the old colonizers. Sometimes I think all our term political aims. stereotypes of foreigners are at least 50 years out of We all have to live with our politics. The problem date. We tend to believe that while our own lives are is not to insulate development from politics but to changing, the rest of the world is standing still. This distinguish what is good development politics from kind of myth is by no means peculiar to the less what is bad. And here my remarks apply equally to developed countries. the industrialized countries and the less developed The facts are that today there are not, in my opinion, countries. enough foreign investors clamouring at the gates of For example, no leader in a developing country can the less developed countries. Those who are estab- afford not to set bold development goals; he must be lished, or would like to be established, have changed responsive to his people. Yet no leader of a developing in their attitudes and outlook just as have the people country can afford to set unrealistic goals and then of the less developed countries themselves. Certainly disrupt the whole economy by trying to achieve them. the foreign investor wants and is entitled to a fair This is the road to frustration. return on his contribution. But I could point to a host Similarly, in the industrialized countries political of examples to prove that the return asked today is leaders have a heavy responsibility to distinguish far different in amount and in character from that between short-term political advantage and the real which the foreign investor took 50 to 100 years long-term interest of their countries in the economic ago. growth of the less developed areas of the world. 10 Despite the existence of an unprecedented flow of In the coming years the Bank's contribution can, I development assistance out of the industrialized am convinced, be increasingly important. The Bank countries today, the real self-interest of these countries is in a unique position to help its members put into is all too often obscured by a welter of short-term effect those measures which are needed to achieve political and economic aims. All too often develop- sustained, healthy development and to provide part ment assistance is seen merely as a means of buying of the necessary capital. diplomatic friends or military allies. As a result, all The Bank was originally conceived solely as a fi- too often development assistance lacks continuity and nancial institution. But as it has come to grips with provides an inadequate basis for the advance planning the problems of development, it has evolved into a of development projects. development agency which uses its financial resources And all too often development assistance is seen as but one means of helping its members along the merely as a means of helping domestic manufacturers, whole broad front of economic progress. As I see it, producers and exporters find new business. For the role of the Bank in the coming years will be to example, I have mentioned several times on these apply the knowledge and experience it gains to an occasions what I regard as the shortsightedness of the ever increasing number of development problems. I indiscriminate use of easy credit terms to promote see the Bank becoming a still more effective agent for exports. Business gained today on these terms is never promoting capital flow into the less developed coun- worth the business lost tomorrow if easy credit leads tries, and perhaps the most persuasive external means to undermining the capacity of the customer to meet of encouraging these countries to adopt policies and his foreign obligations in the future. (I might mention, attitudes conducive to sound economic growth. too, that mortgaging future foreign exchange earnings More is involved in this prospect than a continuation for imports for ill-considered projects just because of economic surveys and loan negotiations. There is a something is offered on credit can be a very bad continuing need for flexible and imaginative approach- bargain for the less developed countries as well.) es to all the problems of development. One such I think the industrialized countries would do a use- approach is the International Finance Corporation, ful service just by drawing a clear distinction between for which we in the Bank have high hopes. We are also aid for economic purposes, and aid for military and following closely developments in atomic energy, as the other non-economic purposes. This would at least de- seminar to which you are invited on Thursday illus- fine the real area of their concern for growth in the trates; and we are exploring carefully the role which underdeveloped world for its own sake. It is very much the Bank can play in assisting the application of this in the self-interest of the industrialized countries that new technique to the field of energy. I have already they define this area of concern clearly. For, as I have mentioned the progress we are making with our Eco- said, a common concern with economic development nomic Development Institute. I hope that the Bank for its own sake is certainly the best hope-possibly will always be in the forefront of organizations around it is the only hope-of helping the great transforma- the world which are seeking for new ways to give tan- tion going on in the less developed countries along gible effect to the idea of healthy economic growth. lines compatible with the growth and security of But the Bank can grow only as it continues to re- people everywhere. ceive the wholehearted support of its member govern- In short, the degree of success we have with de- ments. We have had this support in very full measure velopment in the less developed countries in the years over the past ten years and I am grateful for and en- ahead will be determined in large part by the success couraged by the many manifestations of good-will with which each country represented in this room can that have been extended to me personally and to the disentangle its real interest in such development from Bank as an institution by all our member govern- conflicting short-term political pressures and policies. ments. The Bank is their Bank. It can make its maxi- 11 mum contribution only as its members continue to I pose these questions because I think, without, I help create the climate and conditions in which the hope, presumption that some national self-analysis on Bank can operate most effectively. this subject is in order today. The old slogans have I would ask each of our members, therefore, to con­ lost a lot of their meaning through constant repeti­ sider where its own real long-term interest lies in pro­ tion. The old reasons for helping others help them­ moting this idea of economic development. And then selves to better their material lot need re-examination how far this real self-interest is jeopardized by policies and re-articulation. I said earlier that I thought that and attitudes which reflect, in some cases, emotional the less developed countries today hold, not just the hostilities inherited from a past or, in other cases, key to the Bank's future, but in large part the key to considerations of short-term political or economic the future of the world. It is because I think this to be advantage. I would ask them, in other words, to de­ true that I ask you to consider anew the challenge we cide what they really want. Is it short-term advantage, all face in promoting the kind of sustained, healthy is it dogma, is it prejudice-or is it economic growth? growth that is our common objective.