ANNUAL ADDRESS BY GEORGE D. WOODS, PRESIDENT OF THE BANK AND ITS AFFILIATES The International Bank for Reconstruction and In all, 600 officials from more than 90 countries Development, the senior member of the World Bank have participated in the courses conducted by the Group, has now accumulated 20 years of experience. Institute. In its 20th year, just completed, it spearheaded Mr. Chairman, to carryon a steady pace of lend- activities which by now are becoming well estab· ing operations a constant flow of funds :s required. lished. These include: A banker without money is like a doctor without pills. -Commitments to lend over $1 billion by the Group With the widespread shortage of capital, the World Bank and IDA are facing a serious financial prob- as a whole; lem. Since our last meeting, a year ago, the Bank -Providing technical assistance to increase the has sold $460 million principal amount of bonds- ability of member countries to make good use of of which only $295 million was new money and $165 their own and outside capital; million was to refund outstanding debt. Our borrow- -The pursuit of measures to encourage and enlarge ings were made up of 265 million in U.S. dollars the flow of capital to our developing member privately placed with central banks and govern- countries; mental entities outside the United States; 20 mil- -Continuing studies of the economies and eco· lion Canadian dollars publicly offered in Canada and nomic performance of individual countries, and 175 million in U.S. dollars publicly offered in the of the broader aspects of development finance; United States. These offerings were successful, and finally although we had to fix the highest interest rates that we had ever offered in the Canadian and United -Strenuous efforts to raise funds in the capital States markets. markets of the world. Tight money conditions disappointed our expecta- The Bank and the International Development As- tions that we would enter several European markets sociation (IDA), while carrying on their normal fi- during the year. We are continuing our efforts and nancing of infrastructure, continued the trend to- there is reason to believe that we will meet with ward more financing of education and of agriculture success in Europe in the current fiscal year, although -which term includes among other things fertilizer the interest rates will be higher than we have ever components and plants, highways, irrigation and paid in the past. credit for small agriculturists. The International Fi- The current standard interest rate of 6 per cent nance Corporation (lFC) ended its first decade of for loans made by' the World Bank was established operations with the most active year in its history- in February of this year-still under the maximum from the standpoint both of number of commitments rate of 61;4 per cent which existed for a brief period and sums of money committed. in 1960. I expect to re-examine the question of Since the close of the fiscal year, Bank and IDA interest rates with the Executive Directors in the operations have continued at a good pace. In these not too distant future, and I bespeak the sympathetic three months over half a billion dollars has been understanding of the Governors in this matter. While approved for 20 member countries, including a those of you who represent borrowing countries number of loans and credits for African develop- particularly desire to see interest charges as low as ment. IFC, likewise, has begun the current fiscal possible-a desire which I share-I ask you to year briskly, and with indications that it will con- remember that the primary responsibility of the tinue both to increase the size of its commitments President and the Executive Directors must always and to broaden the purposes of its investments. be to maintain the financial integrity of the Bank. In January of this year the Economic Develop- This is vital if we are to continue to attract necessary ment Institute (EDI) celebrated the tenth anniver- capital on the most favorable terms possible in a sary of its organization. From modest beginnings, world of the highest interest rates in 40 years. the Institute has built firm foundations and a dedi- The rising pace of IFC operations has now reduced cated, experienced staff. It has become a prototype the Corporation's uncommitted funds to less than for similar institutions established around the world $15 million. It is therefore our intention in the to improve the formulation of policies and the ad- immediate future to invoke the new authority we ministration of projects in economic development. have for IFC to borrow from the World Bank, and I 5 plan to recommend to the Executive Directors that to the developing countries. I welcome it and wish we begin by opening a $100 million line of credit in it well. favor of I FC. The second project has to do with a multilateral We can no longer postpone decisions looking scheme, initiated within the Organization for Eco- toward the replenishment of IDA resources. The nomic Cooperation and Development (OECD), for uncommitted funds remaining at IDA's disposal are insuring private international investors against other now approximately $110 million. Assuming the than commercial business risks. Acting at the re- approval at this Governors' meeting of the recom- quest of both OECD and the United Nations Con- mended transfer of $75 million from Bank earnings, ference on Trade and Development (UNCTAD), the I estimate that IDA's ability to undertake new com- Executive Directors have had, and expect to con- mitments will terminate well before the end of this tinue, discussions of staff papers on the issues fiscal year. inherent in such a scheme. A preliminary draft of a Last July, I proposed to governments that IDA's charter reflecting these discussions is being pre- resources be replenished on a scale that would per- pared by the staff, and I expect to present it in mit it in the future to make commitments to the time to receive a first round of governmental com- developing countries in amounts commensurate with ment by the end of this year or very soon thereafter. their abilities and needs. Even though actual trans- I close this short summary of the year's work by fers of funds to IDA, by the donor countries, can noting the Bank's continuing interest in the opera- be delayed for three years until fiscal 1970, un- tion of groups formed to coordinate assistance to usually severe budgetary and balance-of-payments developing countries, and to facilitate its more problems present high hurdles for certain donor effective channeling and use. Nine of these groups countries. I am glad to report, however, that my have now been formed under the chairmanship of discussions with IDA Part I countries are continuing the Bank. The newest, agreed to in Paris during in a spirit of mutual desire to arrive at a program July, was formed for the benefit of Peru. That 19 which is sound and feasible from the broad viewpoint capital-exporting countries now are associated with one or more of these coordinating groups seems to of both the industrialized and the developing coun- me to be a remarkable and an encouraging circum- tries. stance. We persist in our efforts-in collaboration with Let me cordially acknowledge, too, the welcome others-to enlist more fully in the development and growing scope of multilateral financial institu- effort throughout the world the greatest and rela- tions outside the World Bank Group--the regional tively least used resource of all-namely, private development institutions already based in Europe capital, together with the managerial and technical and the Western Hemisphere, the new African De- skills that come with it. This is a slow process and velopment Bank, and the Asian Development Bank will evolve only gradually. The growing scope of IFC which is soon to begin operations. operations should be increasingly helpful in this Mr. Chairman, the end of the Bank's 20th year effort. is an appropriate juncture for taking stock of the We have been carrying forward two projects aimed international development effort-to appraise past at increasing the willingness of the private entre- accomplishments and to measure the task still fac· preneur and investor to venture abroad. It gives ing us. me great satisfaction to report that the first of these We all know the factors that throw long and projects has now come to fruition, thanks in large somber shadows on the development scene: part to the skillful and diligent leadership of the Most of the world still lives in deep poverty; in Bank's General Counsel, Mr. Broches, over the past the Bank's membership, about half of the popula· four years. The Convention on the Settlement of tion have yearly incomes below $100 per head. The Investment Disputes has been ratified by the required developing countries must labor against severe number of States, and will enter into force on Octo- handicaps-among them, excessive dependence on ber 14, 1966. An International Centre will come fluctuating and slow-growing earnings from exports into being on that date to provide facilities for the of a few primary commodities, debt service obliga· settlement through conciliation or arbitration of tions that place a heavy claim on available foreign investment disputes between States and foreign exchange, and, in many countries, rates of population investors. The Centre will be an additional and growth that offset gains in production. These prob- needed instrument to facilitate the flow of capital lems are much better understood today than they 6 were even a few years ago, and they are increas- but an improvement. There are about 15 countries ingly engaging the attention of the international where the basic conditions for economic advance community as a whole. are such that they could become relatively inde- Of particular concern to all engaged in the devel- pendent from foreign assistance within the next 10 opment effort is the failure of food output in many to 15 years. countries to gain ground in the race with growing Let me cite specific achievements. population and rising standards of nutrition. How- Installed power capacity in developing countries- ever, without wishing to minimize the difficulties a basic infrastructure facility-more than doubled facing agriculture in much of the world-I have in the decade 1953-1963. Production of electrical spoken of these many times-there are reasons energy in these countries is now more than two- why a more productive future can be expected. The thirds of the amount produced in Western Europe problems certainly are not insoluble. A number of and North America before World War II. developing countries-Israel, Korea, Mexico and Mining production in developing countries has Thailand for instance-have shown what can be done risen in the past ten years at almost 10 per cent to increase and diversify farm production within a yearly, compared to 2 per cent in the industrialized relatively short span of years. The amount of credit regions. The world is becoming increasingly depend- for improving farm output, while still inadequate ent on the fuels and metals which the developing and often poorly administered, is nevertheless esti- countries are able to produce both abundantly and mated to be increasing at the rate of 10 per cent cheaply. a year. The industrial production of the developing coun- Probably the most promising single way to bring tries has doubled in the past decade. The manufac- about a decisive improvement in food production ture of steel has tripled, and plans for further ex- lies in the increased application of fertilizers. The pansion are well advanced. Annual cement produc- use of plant nutrients in the developing countries tion has more than doubled; it is now higher than the now amounts to about 4% million tons annually- amount that Western Europe and North America three times what it was ten years ago. But this is were producing before the war. Exports of manufac- still far too low. If we aimed to increase fertilizer tures of the developing countries are proving com- consumption in these countries to only half the petitive; recently they have been rising faster than amount per acre that is used elsewhere, at least world trade in manufactures. In several countries, four times as much as they have now would be industrialization encompasses increasingly complex required_ technology in heavy and intermediate industries. Fortunately, the developing countries themselves In these three vital areas-electric power, mining, have in abundance the raw materials needed for industry-the developing countries have been forg- the production of chemical fertilizers. Realizing this ing ahead. potential will require collaboration between those Rapid advance also has been made in transporta- countries with the raw materials and those with the tion, another basic necessity. In the last ten years, larger markets for fertilizers. Another essential re- the number of miles of all-weather roads in Africa, quirement will be the removal of barriers that now in South America and in Asia has more than doubled. exclude from some countries the capital and tech- At the same time, freight moved by rail has been nology that are needed from abroad. If these con- growing by 10 per cent yearly in Africa and nearly ditions can be met, the developing countries would 12 per cent in Asia. have an outstanding opportunity for achieving im- The expansion of education, that vital springboard portant tangible results in a very few years. of economic advance, is proceeding significantly The problems that confront economic develop- faster than the growth of population. Total enroll- ments are big and they are serious. But they should ments have greatly increased. The beginning of an not be allowed to obscure the accomplishments, attack on the critical gaps in secondary education which have been many and, in some cases, striking. has been launched. In institutions of higher learn- In a quarter of the approximately 80 developing ing, there is a strengthening trend toward technical countries of the Bank's membership, the output of subjects oriented to development, including engi- goods and services has been rising since the 1950s neering and agriculture. at an average annual rate of 5 percent or more. Although the road ahead is a long one, the past Making allowance for population growth, this is fast record clearly is not one of failure. The most im- enough to double the per capita income of these portant single accomplishment in the development countries in a generation-still far from acceptable effort in the past 20 years is that the peoples of the 7 developing world have acquired skills, adopted atti- At what ought to be a propitious moment in eco- tudes and built institutions that greatly increase nomic development, we are slowing down. On the their ability to achieve further development and to side of the countries providing development finance, use capital productively. Many of the developing to be sure, difficulties exist which must not be mini- countries are attaching greater importance to fiscal mized. In the sphere of economics, there are real and monetary policies, and to market incentives. problems - inflationary pressures, heavy internal Many are building more adequate frameworks of demands for capital and imbalances of international administration. They are ready and able to continue payments - which hamper justifiable increases in progress and at a faster rate. development funds. While we may hope that the Mr. Chairman, at this moment of increased po- constraints arising from these problems are short- tential, it is a matter of high irony that development, term, they nevertheless are vexing and serious for instead of proceeding at the faster pace of which the governments concerned. it undoubtedly is capable, is threatened by a serious Moreover, in some countries providing develop- loss of momentum. The effort is faced by a crucial ment finance, sections of the public look at the finance gap-the difference between the capital future of the developing world in a skeptical and available and the capacity of the developing coun- pessimistic mood-in part because good news is no tries to use increasing amounts of capital effectively news, and the many successes of development go and productively. comparatively unnoticed in the press. But also be- Of course most of the resources needed will con- cause there has come to be a confusion in the public tinue to come from the developing countries them- mind about what development assistance is supposed selves. In the three years from 1962 through 1964 to accomplish_ they financed, on the average, between three-quar- All these factors impede the flow of finance. But ters and four-fifths of their investment from their if the momentum of economic growth in Africa, Asia own savings. Unquestionably, still more can be and Latin America is allowed to slow, if leaders in done to increase savings. Public savings have not these regions lose heart, then the prospect is for been riSing faster than total income; in some coun· deterioration in world affairs that in the end will tries they actually have declined as a proportion of inevitably be of the highest concern in the industrial income. More can be done, and will have to be done, countries themselves. to increase domestic resource mobilization: I am This need not be the future. And it will not be referring particularly to the need for restraint on the future if the industrialized countries give devel- non-productive government expenditures, including opment finance a realistic priority among their other military outlays. More and more of the developing concerns and responsibilities. countries must come to realize that adequate flows In the case of postwar economic reconstruction of external assistance can only be based on their in Europe, objectives were defined and plans were own showing that they are exerting maximum efforts made to achieve them. In the case of development, to mobilize their domestic resources. They must the plans have yet to be formulated, and this is the give clear indications that sound economic develop- task we still face. The many facets of development ment is the primary objective of their government finance-its objectives, the adequacy of resources, policy, and that they have the political stability the mechanisms and the techniques-need to be necessary to achieve that objective. put under the concerted scrutiny of the aid-giving But there are limits beyond which public savings countries. It would seem to be clearly in the self- in these countries cannot be pushed. External assist- interest of these countries to devise a coordinated ance for development therefore will be critical-not and a long-term approach. forever, but for a period of time which cannot be It is certain, I think, that the last third of the precisely forecast. Given the record of achievement in the developing twentieth century belongs to the problems of the world and given the remarkable and continuing rise two-thirds of mankind which are economically the of prosperity in most of the industrialized countries, least well situated. There is plenty in the record to it might be supposed that the curve of development show that these problems can be met; but meeting assistance would, in fact, be rising. But as is well them will require strenuous effort and new thinking known, assistance from public sources is not increas- by developed countries and developing countries ing; as a proportion of the income of the indus- alike. trialized countries, it has continued to decline for Mr. Chairman, I look forward to a week of fruitful the fifth successive year. discussion. 8