ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK, IN PRESENTING THE SEVENTH ANNUAL REPORT OF THE BANK TO THE BOARD OF GOVERNORS, SEPTEMBER 5, 1952 Let me begin by expressing my gratitude lent more than in the year preceding; and in Jor the gracious hospitality being shown to Europe we lent substantially more. us by the Government of Mexico. It was, I Disbursements rose to $185 million, the think, a happy decision of the Governors highest level since fiscal 1948. More than a that we should meet in this capital city. It third of this was used for purchases outside gives us a chance to see with our own eyes the United States. something of a nation in which the process The Bank has continued to adapt its lend- of economic development is fully under way. ing policies and procedures to the differing Since before the war, the income of the problems presented by its borrowers. Mexican citizen has, on the average, increased We usually lend for specific and individual by more than half. This improvement has projects. In the great majority of cases, this been brought about by the growth of produc- is the most practical and effective form of tion in almost every part of Mexico's econ- collaboration between us and the borrower. omy. It was achieved without conspicuously But even when we make loans for single plentiful resources and often under difficult projects, we often are financing some key circumstances. It has been based, to mention component of a larger undertaking. Some only a few of many factors, on the energies of the Governors were glad to observe last of the Mexican people, the adaptability and year that in the case of Australia, we were initiative of the citizenry, on sound invest- giving support to an entire program of de- ment of public funds in the expansion of velopment. We have made additional loans basic utilities and social services, and on the of this broader type since we convened in sustained confidence of the country in a suc- Washington 12 months ago-to the Belgian cession of competent national administra- Congo, to Italy, to Yugoslavia and, for a tions. second time, to Australia. These cases differ The relations between the Bank and Mexico considerably in detail, but they all reflect have been particularly close and continuous. the principle that the Bank is as much inter- The fact that we are meeting here is evidence ested in the progress a country can make on not only of Mexican hospitality but also, I a broad front as in the success of a particu- hope, of mutual satisfaction. Mexico, as a lar project. Program loans may continue to member of our Bank, can welcome us; and be the exception rather than the rule; but we, for our part, feel at home here. they definitely have taken their place among This has been an active 12 months for the the instruments used by the Bank to promote Bank. We slightly exceeded the record vol- economic development. ume of lending we established last year. We In other ways, the Bank has kept its lend- provided more technical assistance to our ing techniques flexible. Our loan of last Oc- members, especially in the planning of de- tober in support of the 10-year plan for the velopment. We were more active in raising development of southern Italy, for instance, funds in the capital markets of the world. is for us a new kind of transaction. It is not For the second consecutive year, our lend- intended to finance the equipment needed for ing approached $300 million. That sum is carrying out this program. Rather, it will composed of $30 million of new loans in Asia, cushion the impact of the program on the $68 million in Africa, $79 million in Latin Italian economy, by providing dollars to America, and more than $120 million in meet some of the demand for imported goods Europe. Our second loan to Australia did that the 10-year plan will generate. not come until after the end of the fiscal Our loan to Belgium, likewise, might be year, but in each of these other areas, we called an "impact" loan-designed in this [6] case, to offset the dollar cost that will arise investors outside the United States hold ap- from Belgian support of a development pro- proximately one-quarter. The central bank- gram in the Congo. ing institutions of 12 of our member nations, The Bank is keenly aware of the necessity in particular, have acquired for their re- for keeping its lending flexible in another serves some of the largest known holdings of important respect. Up to now, the Bank has the Bank's bonds. lent chiefly in dollars. To the extent that we Finally, the Bank's lendable resources, as can lend in other currencies, we can better I have already implied, were increased by the meet the needs of countries more able to release to us of parts of the local currency service debt in those currencies than in dol- subscriptions of several member countries. lars. During the year, we made one loan to The French Government, for instance, re- Iceland and another to Yugoslavia which are leased the francs which will be used in the repayable entirely in European currencies. Pakistan loan, and the South African Gov- Almost half our railway loan to Pakistan ernment has made available to us pounds consists of French francs, and part of our which will be used in the loan for Southern loan to Southern Rhodesia will be disbursed Rhodesia. Of particular note, let me say, in South African pounds. Nearly 15 percent was Canada's release, in the spring of this of the amount we lent this past year is re- year, of 41 million Canadian dollars on a payable in currencies other than dollars-a fully convertible basis. This constituted the proportion much higher than in any previous balance of her original paid-in subscription year. of 58.5 million Canadian dollars to the Bank's With our lending at the current rate, we capital. have increased our own borrowings. We went If we survey all the funds which the Bank to the capital markets four times, with two has had available for lending since the start bond issues in the United States and our of its operations, the international charac- first public offerings in Canada and Switzer- ter of our financial resources emerges with land. The total amount of our issues was particular clarity. Up to the end of the fiscal equivalent to approximately $175 million, a year our lendable resources amounted to the sum greater than in any year since 1947. equivalent of nearly a billion and a half dol- The Bank has also replenished its lendable lars. Of this $375 million in dollars and other funds by $23 million of sales from its port- currencies-or about one-quarter in all- folio; more than $10 million of these sales, was received from, or borrowed in, our mem- let me point out, were made without our guar- ber countries outside the United States. I antee. am hopeful, in spite of all the known diffi- I am glad to say that our bonds enjoy a culties, that the Bank will continue to re- strong position in Switzerland, the United ceive releases of the currencies of its Euro- Kingdom and Canada, as well as in the United pean members. The need for non-dollar funds States. As the amount of our dollar obliga- is as urgent as ever. tions has increased, there has been a satisfac- One of the main objectives of the Bank, tory broadening of the market for our se- I hardly need remind you, is to promote the curities in the United States. The Bank has international investment of private capital in been affected, however, by a general trend, economic development. The Bank's bonds all over the world, toward higher interest themselves are one of the principal avenues rates. We have had to pay more on our own by which such investment is made, and most borrowings, and there has had to be a cor- of our sales from portfolio have been made responding rise of interest rates on our loans. to private investors. In addition, however, I would like to emphasize that the market the Bank has continued to be able to interest for the Bank's own securities and for those the private market in more direct participa- received from borrowers is becoming more tion in its lending. American banks this year and more international in character. Of the took portions of two of our loans-one to more than $500 million worth of direct and the KLM Royal Dutch Airlines, the other guaranteed obligations we have outstanding, to Pakistan-at the time they were made. [7] I see signs that private participation in our ments of the Netherlands and Surinam. The lending will become an increasingly impor- report of our mission to Ceylon was published tant feature of our operations. earlier this week in Colombo and Washington. One condition, of course, for the interna- In a few days, we will be presenting to the tional investment of private capital is that Government of Nicaragua the report of two there be a reasonable prospect of repayment. of our staff members who spent nearly a In some cases, this prospect is clouded by the year in that country, working with the Gov- existence of obligations already in default; ernment in drafting a development program and in some instances the Bank has been able and starting to put it into effect. The recom- to encourage its member governments to mendations of our recent mission to Jamaica start negotiating settlements on these obli- are now being prepared in final form. gations as an essential means of encouraging Economic surveys, I hardly need tell you, the resumption of foreign investment. are nothing new. Many good ones have been We have also, as you will have noticed in done, and some of them lie moldering in the our Annual Report, made an intensive study archives of our member nations. It is still of a proposal to establish an International too early to say what the fate of our own sur- Finance Corporation as a new instrument for veys may be; but I am glad to say that the investment in private enterprise. This Cor- results, so far, have been encouraging. I poration would be affiliated with the Bank, believe that the Governor for Colombia would but would have its own capital subscribed by agree with me that the report of our mission member governments. It would be able to do to his country, and the recommendations by two things the Bank does not do: it could a citizens' committee on economic develop- make loans to private enterprises without ment which followed it, have already had an governmental guarantees, and it could pro- important influence on the economic life of vide equity capital. We have prepared a re- Colombia. In the case of other countries port on this proposal, and shall continue to more recently visited by our missions, our explore the idea with private financial and Annual Report gives many instances of ac- business interests and with our member gov- tion already under way to carry out funda- ernments. The proposal needs to be given mental recommendations and provide a basis further consideration, and the Corporation for accelerated economic progress in years to admittedly would be an experiment. But I come. personally think that it might prove to be a The Bank has continued to take a broad useful instrument for stimulating investment view of its responsibilities and opportunities of private capital, both domestic and foreign, in other respects. Indeed, we could hardly do in enterprises significant in economic de- otherwise and remain faithful to the charac- velopment. ter of our Bank as a cooperative, interna- The Bank, of course, does not regard it- tional institution. self merely as a source of financing. I have Early this year, after expressions of inter- often said to you in these meetings that in- est by Iran and the United Kingdom, repre- ternal factors are more important in a coun- sentatives of the Bank visited London and try's economic growth than financing from Teheran. The purpose of our mission was to abroad. We have therefore continued, at the see whether the Bank could work out some request of member countries, to send our interim arrangement for restoring oil opera- general survey missions, composed of im- tions in Iran and give the parties to the dis- partial experts, to help those countries assess pute time to reach agreement. Our efforts, their potentialities and to draw up broad pro- as you know, were not successful, and our grams which will best channel their own negotiations were recessed in Teheran last energies and resources into development. March. The reports of four of these general sur- The Bank has also offered its services in vey missions were presented during the year, another matter affecting two of its member to the governments of Cuba, Guatemala and countries. When I was in Asia late last Iraq, and, for Surinam, jointly to the govern- winter, I discussed with the Prime Ministers [8] of India and Pakistan an invitation I had own capital more effectively. This is a sub- already extended for the two Governments to ject which is being actively studied on the examine, together with the Bank, the possi- continent. The Bank has followed this study bilities of developing the water resources of closely and with sympathetic interest. the Indus River System which are so im- Some of the proposals which recently have portant to the economic development of both been made envisage the creation of a new these countries. The Governments accepted financing institution. If new arrangements this invitation. Their engineers met with come into existence, the Bank would, of ours in Washington this spring, and suc- course, cooperate with them. But let me point cessfully completed a series of meetings out that new institutions themselves do not which drew up a program for studies of create savings. Fundamentally we must work possible technical measures to increase the with what we have. I myself believe very supplies of water in the Indus Basin. Their strongly that the Bank itself could operate engineers and ours will convene again next effectively as an instrument for mobilizing November in Karachi for an exchange of European capital, and I doubt that sufficient information as a prelude to further meetings. consideration has yet been given to the role I personally am encouraged. I hope that the we might play in this respect. eventual outcome will be the development of these water resources, with the help of the The Bank already has had some experience Bank, in a way which will bring great bene- in tapping private resources by the sale of fit to millions of people in both India and its securities in European markets. With the Pakistan. cooperation of its members, it could be more As we review the Bank's performance in active in raising additional private capital. the past year, I think we can take satisfac- That might well require the working out of tion from the fact that our operations have new types of bonds and of distribution tech- been disturbed remarkably little by the eco- niques that have not yet been tried. I think nomic changes which have taken place since this is a field well deserving further study, the outbreak of war in Korea. Looking for- and I am anxious to explore, with the Gov- ward, it seems to me that if the Bank and its ernors most closely concerned, any adapta- members fully grasp the opportunities they tion of our operations that would better fit have, the coming year will see a significant them to the particular investment needs of increase in the Bank's operations. Europe and to the special conditions now pre- In Europe, there continues to be an urgent vailing in Europe's capital markets. need for greatly expanded production. This The continuing movement toward economic will require heavy investment in new plant integration in Western Europe may raise and equipment, as well as in modernization new opportunities for the Bank. The Schu- of old. It wiII have to be achieved without man Plan, for instance, which aims at the provoking inflation, and will have to take integration of the continental coal and steel place at the same time as United States aid industries, has now begun to operate. The is being reduced in scope and amount. capital requirements of the Plan certainly The Bank, for its part, can supplement will be large, and the necessary equipment Europe's own capital with dollar loans. I probably can be procured for the most part have already remarked that the scale of the in European currencies. Should the Bank Bank's lending in Europe was substantially be asked to provide some of the funds, ques- increased during this past year. Our ability tions would arise with which we have not to lend in dollars, however, is limited by the previously been confronted, for example, con- fact that the capacity of many European cerning the form of guarantee needed for a countries to service additional dollar debt is loan to an international body. In any case, itself limited. the Schuman Plan potentially has great im- From now on, it is clear, the countries of portance. It is one of the projects that the Europe will have to rely more on their own Bank, should it be called on, would be glad savings, and will have to mobilize their to search for feasible ways to assist. [9] For those of our member countries who taken by an increasing number of govern- are leading producers of primary commodi- ments as a first step in gauging more ac- ties, the swift rise of raw materials prices curately the potentialities of their economies that followed the outbreak of the war in and determining the directions in which de- Korea, and now the recession of those prices velopment should move. Programs and pro- to pre-Korean levels, have been outstanding gramming agencies have been established to economic events of the past two years. assure continuity of effort. Finally, the finan- Not all primary products shared in the cial resources, and the increasing skill of the boom, and not all our less developed members underdeveloped countries in planning the use shared in the higher earnings of foreign ex- of those resources, have been supplemented change that resulted. Nevertheless, a num- by a growing volume of financial and tech- ber of our member countries in Asia and nical assistance from the more advanced Latin America made good use of extra earn- nations. ings by devoting a sizeable portion of them The problems which face the underdevel- to financing economic development. To do oped countries are still tremendous and diffi- so required firm and expert handling of the cult. Often in the past, I have stressed the inflationary pressures exerted by high prices shortcomings of the policies and practices in world markets; among several noteworthy of some of our member nations in dealing performances of this kind, I might specifi- with these problems. cally mention those of India and Colombia. Nevertheless, the scene presented by the At the other extreme, I regret to say, some underdeveloped countries is one of growing members of the Bank not only failed to take activity, and of a growing amount of soundly ,advantage of the windfall from high raw ma- planned activity. The implication for the terials prices, but allowed inflation to distort Bank is that we have a broader and better their economies to such an extent that they basis on which to conduct our operations. are not so well off today as they were two Many times, the Bank has warned that years ago. massive injections of foreign capital cannot In any event, the boom is now over and our successfully be absorbed in the first stages of less developed member countries are left a country's development. We have pointed to deal with the same hard problems that con- out that shortages of skilled manpower and fronted them before. There are, however, the lack of basic facilities are limiting fac- many factors in the situation which I find tors which will take a long time to overcome. encouraging. In the postwar years, and par- These statements have sometimes been mis- ticularly in the last two, I think much prog- construed as expressing a timidity or a lack ress has been made, both in a growing under- of real will on our part to promote develop- standing of economic development and in the ment. adoption of techniques to bring that develop- The facts show otherwise. To more than ment about. half our borrowers, we have made repeated The governments of underdeveloped coun- loans-to Mexico, for example, in 1949, 1950 tries are realizing more and more that eco- and 1952; to Colombia in 1949, 1950 and 1951, nomic progress is the primary responsibility and to Brazil in 1949 and every year since of the countries themselves. Responsible then. In countries of Asia and Africa, as leadership, to an increasing extent, is buck- well as in the developing countries of Europe ling down to the job, and is attempting to like Turkey and Finland, we are doing the achieve progress through sound planning, same thing. financing and engineering. These continuing relationships are proof Many of the world's less developed coun- that, far from recoiling from additional com- tries are attempting to shape their economic mitments, we are on the contrary supporting policies-and especially their investment the development of our member countries policies-to make better use of their own year by year and step by step. We are lend- physical and financial resources. Intensive ing money in amounts our borrowers can stocktaking of these assets has been under- effectively use and can reasonably be expected [10 ] to repay ; we are lending for those purposes unnecessary restrictions on the movement of that will do the most to make the borrowing goods in world trade and of the money needed countries more productive and able in the to pay for them. future to put still more money to work. This But the main effort-and most of the means is the basic principle of investment. Soundly -must come from the less developed coun­ and persistently applied, it can help nations tries themselves. They must want develop­ to move forward. ment, and they must want it badly enough Let us ask ourselves, what do we want, all to make some sacrifices. It is up to them to of us, from this process of development? I free the forces of progress in every way they think we want a world of freedom, of stable can-by continuity of effort, by fiscal and peace, of expanding production and trade­ economic policies that will encourage eco­ a world of opportunity in which free men can nomic growth, by sound programs of invest­ more and more govern their own careers. ment, by a multitude of actions which will How do we go about achieving what we increase incentives for labor, for manage­ want? Development is most certainly not the ment, and for capital-both domestic and concern of only those countries whose stand­ foreign. ard of living is still woefully low. It vitally These are some of the conditions of prog­ concerns, too, the more industrialized nations, ress. If they are met-substantially-the because their own best hope of progress is an underdeveloped nations can advance, not with expanding world economy. a sensational rush, but with an increasing mo­ Financial and technical assistance will con­ mentum. And as the conditions of life im­ tinue to be needed for many years from those prove, so will the prospects of a stable peace. countries which can afford exports of capital Improvement in the living conditions of men and skill. Granted that the underdeveloped brings a sense of personal fulfillment and self areas do not yet have the capacity to make respect. With respect for themselves as indi­ productive use of any huge inflow of re­ viduals, people are not easily fooled by the sources, we must still admit that the present cynical and disruptive propaganda of dema­ magnitude of international investment for gogues-whatever mantle they may be wear­ development is clearly inadequate to the need. ing. Whatever form it takes, the assistance of In development the Bank, I think, has a the industrialized countries must be steady vital role to play. Not only can we be a and continuous. It must not be warped by source of some of the capital that is needed; politics. And it must be accompanied by in­ but we can serve as a focal point for stimu­ ternational economic and commercial poli­ lating and supporting constructive action on cies consistent with the development objec­ the part of all those who are working toward tive-in particular by the removal of all the common goal. [ 11]