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INTERNATIONAL BANK FOR

RECONSTRUCTION AND DEVELOPMENT

SUMMARY

PROCEEDINGS NINTH ANNUAL MEETING OF THE BOARD OF GOVERNORS

WASHINGTON, D. C.

SEPTEMBER 24-29, 1954

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INTRODUCTORY NOTE

The Ninth Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development was held in Washington, D. C., from September 24 to September 29, 1954 under the chairmanship of J. van de Kieft, Minister of Finance of the Netherlands.

These Summary Proceedings cover generally the work of the Board in committee meetings and in five plenary sessions, two of which were held jointly with the Board of Governors of the Inter­national Monetary Fund.

One informal session, in addition, was devoted to a panel discus­sion on the subject of prospects for private international investment.

Washington, D. C.

October 15, 1954

M. IVL MENDELS Secretary

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

NINTH ANNUAL MEETING

FINAL SCHEDULE

THURSDAY -September 23- 3 :30 p.m.-Joint Procedures Committee

FRIDAY -September 24-10 :00 a.m.-Opening Ceremonies First Se~sion (Joint)

Report of Procedures Committee -11 :30 a.m.-Fund Board-Annual Report:

Address by Managing Director of Fund

SATURDAY -September 25-10 :00 a.m.-Bank Board-Annual Report: Address by President of Bank

-10 :45 a.m.-Bank Committee on Finance and Organization -11 :30 a.m.-Discussion on Fund Annual Report - 3 :00 p.m.-Fund Committee on Finance and Organization

MONDAY -September 27-10 :00 a.m.-Discussion on Bank Annual Report - 3 :30 p.m.-Discussion on Fund Annual Report

TUESDAY -September 28-10 :00 a.m.-Bank Informal Discussion -12 :00 noon-Fund Board

Managing Director's Concluding Comments Committee Reports

- 3 :00 p.m.-Fund Board Committee Reports (Continued) Election of Executive Directors

- 5:00 p.m.-Bank Board President's Concluding Comments Committee Reports Election of Executive Directors

WEDNESDAY -September 29-12 :00 noon-Joint Procedures Committee - 3 :30 p.m.-Closing Session (Joint)

ii

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CONTENTS

Page

Message from Dwight D. Eisenhower, President of the United States, to the Boards of Governors of the Bank and Fund, at the Joint Opening Ceremonies, September 24, 1954 1

Address by the Chairman, J. van de Kieft, Netherlands Minister of Finance, to the Boards of Governors, at the Joint Opening Session, September 24, 1954________________________ 2

Address by Eugene R. Black, President of the Bank, in Presenting the Ninth Annual Report to the Board of Governors, September 25, 1954______________________________________________________ 6

Address by the Chairman at the Joint Closing Session, September 29, 1954______________________ 12

Committee Reports:

Joint Procedures Committee Report N o. L__________________________________________________________________ 14

Annex IVl -Agenda____________________________________________________ _____ _______________ _______________________ 16

Annex V -Committee on Finance and Organization________________________________________ 16

Annex VI -Committee on Finance and Organization-Terms of Reference____ 17

Annex VII -Informal Panel Discussion-"Prospects for Private International In ves tmen t" ______________________________ ____________ _ ____ __________________________________________ 17

Annex VIII -Provisional Schedule _ _________ ________________________________________________________________ 18

Annex IX -Provisions Relating to the Conduct of the Meeting________________________ 19

Joint Procedures Committee Report N o. 2_____________________________________________________________________ 20

Report of Committee on Finance and Organization ____________________________________________________ 21

Report on Marketing Activities of the Bank____________________________________________________________________ 23

Resolution adopted by the Board of Governors between Eighth and Ninth Annual Meetings:

No. 85-Terms and Conditions on Which Israel shall be Admitted to Membership in the Bank__________________________________________________________________________________________________________________ 26

1 Annexes I-III related to business of the Fund.

iii

CONTENTS ( Continued)

Resolutions adopted by the Board of Governors at Ninth Annual Meeting:

Page

No. 86-Fifth Regular Election of Executive Directors______________________________________________ 28

No. 87 -Financial Statements and BudgeL_____________________________________________________________________ 28

No. 88-Terms and Conditions on which the Republic of Korea shall be Admitted to Membershi p in the Bank____________________________________________________________________________________ 28

No. 89-Terms and Conditions on which Afghanistan shall be Admitted to Member-ship in the Bank __________________________________________________ . __________________________ 30

No.90-Place and Date of Tenth Annual Meeting____________________________________________________ 32

No. 91-0fficers of Beard of Governors for 1954-55________________________________________________________ 32

No. 92-Composition of Procedures Committee for 1954-55___________________________________________ 32

Rules for the Conduct of the Fifth Regular Election of Executive Directors______________________ 33

Executive Directors Elected at Fifth Regular Election_____________________________________________________ 37

Summary S ta tements at Panel Discussi on_________________________________________________________________________ 39

Accredited Members of Delegations at Ninth Annual Meeting_________________________________________ 56

Observers at Ninth Annual Meeting_______________________________________________________________________ 61

Officers of Board of Governors and Procedures Committee for 1954-55______________________________ 63

iv

MESSAGE FROM DWIGHT D. EISENHOWER, PRESIDENT OF THE UNITED STATES, TO THE BOARDS OF GOVERNORS OF

THE BANK AND FUND, AT THE JOINT OPENING CEREMONIES, SEPTEMBER 24. 1954

To the Chairman and Governors of the International Bank for Reconstruction and Development and the International Monetary Fund:

I am delighted to send greetings to the Boards of Governors of the International Bank for Reconstruction and Development and the International Monetary Fund at their Ninth Annual Meeting in Washington.

The International Bank and the International Monetary Fund during the past year have again demonstrated that they are active and effective instruments in promoting international cooperation to­ward the well-being of the free world. The United States heartily approves the Fund's efforts to free the world from restrictions on the flow of trade and money and to foster sound monetary policies and currency convertibility. The Bank has notably aided the member countries in their economic development and has helped promote conditions under which greater flow of private investments can take place.

The Fund and the Bank have our best wishes for success and the assurance of our support. I anticipate with confidence a successful year for both institutions.

[ 1 ]

ADDRESS BY THE CHAIRMAN, J. VAN DE KIEFT, NETHERLANDS MINISTER OF FINANCE, TO THE BOARDS OF

GOVERNORS, AT THE JOINT OPENING SESSION, SEPTEMBER 24, 1954

It is a great privilege for me to preside at this Ninth Annual Meeting of the Boards of Governors of the International Monetary Fund and the International Bank for Recon­struction and Development. Especially so, as this meeting gives us the opportunity of commemorating the day on which, ten years ago, the representatives of forty-four na­tions, still involved in a most tragic war, came together at Bretton Woods and created our two institutions, both dedicated to the works of peace and to the closest cooperation between nations in the field of international finance.

It is a happy coincidence that this meet­ing should take place in the same country that acted as a host to the founding fathers. I wish to express our appreciation for the hospitality the Government of the United States of America is again extending to us all.

I also wish, in my own name and on behalf of my colleague Dr. Holtrop, to wel­come my fellow governors, alternate gover­nors, advisors, representatives of other international organizations and guests, who have come to participate in this conference. In particular I want to extend my greetings to the representatives of Indonesia and Israel, the two countries which joined the Fund and the Bank since our last meeting.

Having arrived, as we now have, at an important milestone on a long and difficult road, one feels inclined to pause a moment and to reflect on what we set out to do, on what has been accomplished and on what tasks still lie ahead for the near future.

Looking back on the years behind us, I know that I am speaking on behalf of all of you, when I first of all honour the men who were willing to take upon themselves the heavy responsibility of guiding the first steps

[2 ]

of the Bretton Woods twins: Camille Gutt, who as Managing Director, led the Fund during the first six years of its existence, and Eugene Meyer and John McCloy, the first two presidents of the Bank. Their tasks were particularly difficult, but aided by an able and devoted staff they succeeded in estab­lishing our two institutions as going concerns.

In comparing the achievements of Bank and Fund, it has become commonplace to stress the early achievements of the Inter­national Bank and thereby, indirectly, to underestimate the accomplishments of the International Monetary Fund. I think that those, who feel inclined to compare our two institutions in this way, are apt to forget that by their Articles of Agreement Bank and Fund were given very different tasks to per­form and that only the Bank was fortunate enough to be assigned a very active role in the reconstruction period that was to follow the devastation caused by the world war.

As both its name and the first of its Articles of Agreement indicate, the Interna­tional Bank had the purpose to help in the restoration of economies, destroyed or dis­rupted by war. This task it set out to do from the very beginning.

The earlier loans of the Bank, totalling nearly 500 million dollars, given to a number of European countries that had particularly suffered from the consequences of war and occupation, had fully the character of recon­struction loans. They made a substantial contribution to restoring the economy of Western Europe to its present healthy and active condition.

It was only in the year 1949 that the Bank entered, to any appreciable extent, into the second phase of its activities, the grant­ing of development loans. Since that year,

an impressive program has been carried out, leading to a total of loans of no less than 1400 million dollars, almost equally spread over all the continents of the world. Latin America, Europe, Asia, Australia and Africa have all shared in the beneficial activities of the Bank and one can hardly be surprised that, where so many needs were cared for, appreciation rose high.

The Bank, however, has not only suc­ceeded in making loans, it has also succeeded in following lending policies which have re­sulted in a credit standing of the highest order.

Whilst in the earlier years the funds available to the Bank had mainly to come out of the 18 per cent of the participation of the United States and out of the funds that could be raised in the U. S. bond market, recent developments have given an increas­ingly international character to its resources.

More and more countries have been able to permit the use of the 18 per cent of their capital subscription payable in local curren­cies and in the past year substantial loans were floated on the bond markets of Canada, of the United Kingdom, of Switzerland and of the Netherlands.

Thus the Bank has been able to re­activate the flow of private capital from countries with a surplus of savings to less developed areas in need of investment. This same purpose has been served by the Bank's selling out of its own portfolio bonds of its borrowers to third parties.

All in all, there is little doubt that we may feel satisfied with the results the Inter­national Bank has so far been able to achieve.

Loans of the Bank are becoming more and more both pivots and starters of over-all development plans. This comes about, I be­lieve, because every project is studied against the background of the development of the country and its position in the world as a whole. By making loans to stimulate pro­duction and overall economic activity in the recipient country, the Bank is playing its part in fulfilling another of its basic objec­tives: the diversification and the better balancing of world trade.

[3 ]

On behalf of my fellow governors and myself I wish to express our admiration for the leadership of Mr. Eugene Black during the past five years. We all feel happy that he has been willing to accept the presidency of our institution for five years more.

In contrast to the International Bank, the International Monetary Fund was not meant to playa role in solving the financial problems arising out of the devastation of the war. As a matter of fact its Articles of Agreement specifically stated that it was not intended to provide facilities for relief or reconstruction.

It is true that in the first year of its operations a number of European countries which, as a consequence of war conditions, were particularly short of foreign exchange, were yet allowed to draw on the Fund. But these drawings came definitely to an end after the initiation of the Marshall plan, by which the United States so generously re­lieved the burden which threatened to crush the economies of so many countries.

Rather than providing financial facilities for the postwar period, the prime task of the Fund was to lay the foundations for an or­derly, stable and multilateral system of pay­ments. How much more difficult has it proven to be successful in this task of a mainly educational and organisational char­acter than to gain applause by allowing an easy access to the Fund's resources.

The very first purpose of the Fund, as stated in the Articles of Agreement, is "to promote international monetary cooperation through a permanent institution which pro­vides the machinery for consultation and collaboration on international monetary problems". This purpose has been well served. The close consultations between the Governors at their Annual Meetings, between the Executive Directors in Washington and between the staff and the member countries have proved their usefulness. Equally im­portant is the functioning of the Fund "as a centre for the collection and exchange of information on monetary and financial prob­lems". The Fund has in fact become one of the world's main centres for the study of monetary questions.

Not so easy to gauge is the contribution the Fund has been able to make to its second purpose: the expansion and balanced growth of international trade. The vast expansion of international trade since the war, which has led to a volume of trade far in excess of the pre-war level, has been one of the remark­able features of the post-war period. I feel sure that the principle of fixed rates of ex­change, established by the Articles of Agree­ment of the Fund, has greatly contributed to this splendid achievement.

Also in its third purpose, the promotion of exchange stability, the maintenance of orderly exchange arrangements and the avoidance of competitive devaluation, the Fund has met with a fair measure of success. It is true that in several member countries systems of multiple rates, which were con­sidered anathema by the founding fathers, still prevail. But the Fund has succeeded in gradually bringing about some measure of simplification in this field. Moreover, the study of conditions in less developed coun­tries has resulted in a better understanding of the function these systems may, under special circumstances, perform in the in­ternal economies of the countries concerned.

In the field of par values, the ghost of competitive exchange depreciation, which seems to have so badly haunted the founding fathers, has so far never troubled the Fund and on no occasion has the Fund found it necessary to discourage devaluations. Devi­ations from realistic rates have rather been the other way round. Many countries have preferred to protect their balance of pay­ments positions by quantitative restrictions or mUltiple rates, rather than to proceed to outright devaluation. Such a policy, as a temporary expedient, may sometimes be a sound one if there is sufficient reason to ex­pect that in the near future it will be possible to maintain the existing rate without re­strictions. If, on the other hand, these methods are used for longer periods, they are harmful both to the country applying them and to its trade partners and hardly less ob­jectionable than competitive depreciation.

It is in the realisation of its fourth pur­pose, the establishment of a multilateral

[4 ]

system of payments, that the Fund, so far, has least been able to achieve positive results.

The Articles of Agreement do not refer to the role of regional arrangements in the achievement of a multilateral system of pay­ments. This is to be regretted, for the experience of the European Payments Union has-I think-clearly shown that such an ap­proach to multilateralism was to play a helpful role in conditioning member coun­tries for the rigours of convertibility. It seems to me that there are lessons in the EPU experience that emphasize the need for greater flexibility in carrying out the terms of the Articles of the Fund.

A great deal has been done by the Fund in promoting the elimination of exchange re­strictions. By means of their consultations with member countries the staff have suc­ceeded in exerting a wholesome influence in this field. I feel, however, that they have often been somewhat hampered by the rather formal character of the distinction between exchange restrictions as applied to the field of commerce, and trade restrictions as such. A still closer collaboration between the Fund and the G.A.T.T. might, perhaps, be helpful in bringing about a greater degree of effec­tual liberalization.

It is significant that making available the Fund's resources to member countries is only mentioned in the Articles of Agreement as the very last of the Fund's objectives. We therefore ought not to be surprised that al­though occasional drawings-mainly within the member's gold subscription-do take place, no set of rules for more or less auto­matic drawing rights has yet been elaborated. It is only when the other purposes of the Fund have been more fully realized, and especially when a multilateral system of pay­ments has been established, that the time will have come to formulate such rules.

To my mind the wording of Article I (v) of the Articles of Agreement clearly indi­cates that the founding fathers have not meant access to the Fund's resources to con­stitute by itself the cure for balance of pay­ments difficulties, but that they have looked upon the possibility of this access as a means to provide the membE'r countries with the

time and opportunity to correct with other methods the maladjustments in their balance of payments.

The growing awareness that mistaken internal fiscal and monetary policies are the mainspring of balance of payments difficul­ties is, I think, one of the most important achievements of the development of mone­tary thinking in the last few years. The Fund has played a significant part in the propagation among member countries of this old truth that had come to be somewhat obscured by the experience of the great de­pression and by the impatience of the recon­struction period. We owe a special tribute to Mr. Rooth for having stressed its funda­mental significance. No doubt, this principle deserves to be made the cornerstone of that policy of standby arrangements, which Mr. Rooth has so fervently advocated and which has lately become one of the promising addi­tions to the Fund's instruments of action.

Having thus surveyed the past, it is well to set our eyes upon the future of our two institutions. I do not doubt that this future holds out great possibilities for both of them.

As for the Bank, we have to realize that one of the greatest, but also one of the most complicated economic problems of our time is the difference in wealth between the richer and the poorer nations. This difference of wealth is accentuated by the fact that the level of domestic savings in the poorer coun­tries is by necessity lower than in the richer ones and that consequently the rate of invest­ment in these countries tends to lag behind. Before the war a constant, though, perhaps, still insufficient flow of private capital from more developed to less developed countries helped to allay these differences. Since then a number of new economic and political fac­tors have sprung into being. Many of them have, by themselves, no doubt been of a bene­ficial nature. But yet, one cannot deny that generally they have tended to slow down rather than to increase the flow of private capital to the regions that are most in need of development. The flow of private capital at present is still far below pre-war rates of investment.

[ 5 ]

There is an increasing realization that this problem calls for joint efforts. Countries in need of development will have to follow policies conducive to the promotion of do­mestic savings and to the inflow of foreign capital. Countries with a potential surplus of savings will have to allow the outflow of public and private funds. In all this the In­ternational Bank will have an important task to fulfill. It will have to continue aiding and stimulating the less developed countries to follow sound and balanced development poli­cies. It will, on the other hand, be able to serve as an instrument by which both private and public funds, available in the more de­veloped countries, can find their way to the place where they can yield the greatest benefit.

In playing this role of intermediary, the Bank carries an immense responsibility. The policies, pursued in the past, give me the conviction that this responsibility is keenly felt by both management and staff. This, I feel, will be the best guarantee for the Bank's continued success.

In recent years various proposals have been formulated to set up new institutions to supplement the work of the Bank. There may indeed be scope for a certain expansion of financial possibilities in the international field, but I believe that any new institutions should be connected closely with the Bank, in order to profit from its experience and to avoid duplication of effort.

For the International Monetary Fund the period now ahead will be of crucial im­portance. The transitional period which, as the founding fathers had foreseen, was needed to overcome the dislocation caused by war, is now clearly drawing to an end. The impressive economic progress, made by so many countries, prostrate and exhausted only nine years ago, bears witness to this fact.

The recognition or this new situation puts grave issues before the Fund. For most of its members are still availing themselves of the facilities offered by Article XIV of the Agreement, allowing member countries to continue or even to extend exchange restric­tions. These facilities, however, were spe-

cifically created for the postwar transitional period only. Their prolonged continuation would imply a negation of the Bretton Woods agreement. Clearly, both the spirit of the Fund Agreement and the implementation of the Fund's purposes, make it desirable that many member countries should be found will­ing to renounce the protection offered by Article XIV and place themselves under the rulings of Article VIII. Yet, it would be unrealistic not to recognize that the Articles of Agreement offer few incentives for indi­vidual member countries to waive the rights given by Article XIV, or to deny that the drafters of Article VIII have too easily ig­nored the risks to which countries, accepting the obligations of this Article, expose them­selves.

I understand that the Fund is studying this problem. Such a study should have the purpose of finding a way to induce as many member countries as possible to accept, at an early date, the general obligations of Article VIII, thereby making their currencies con­vertible in the sense of the Articles of Agree­ment.

The draftsmen of the Fund Agreement have clearly been thinking of a world, in which convertibility would be the rule and inconvertibility the exception. It is for such a world that the obligations formulated in Article VIII were written. But the actual

situation in which we live is very different. Inconvertibility is the rule and we cannot ex­pect that all member countries now availing themselves of the protection given by Article XIV could be found willing to abandon these rights all at the same time. The approach to convertibility must, of necessity, be a gradual one.

The issue of a gradual approach to con­vertibility has been very much in discussion since our last meeting. No one has doubted that no such approach could be made without the active cooperation of the International Monetary Fund. It is a challenge to the Fund to find the ways and means to give such cooperation and at the same time to make sure that the convertible system eventually to be inaugurated shall become a truly con­vertible one in the sense of the Fund Agree­ment. If the Fund meets this challenge it has a bright future before it.

I want to conclude by expressing the hope that our discussions and deliberations at this meeting may add to a still better un­derstanding of both the specific problems with which member countries have to cope and the general principles which should con­tinue to guide our two institutions, thus helping Bank and Fund to live up to those high ideals of international cooperation, which animated ten years ago the founding fathers at Bretton Woods.

ADDRESS BY EUGENE R. BLACK, PRESIDENT OF THE BANK, IN PRESENTING THE NINTH ANNUAL REPORT

TO THE BOARD OF GOVERNORS, SEPTEMBER 25, 1954

This is the sixth of the Annual Meetings of the Board of Governors that I have had the honor to address, and I am glad to have yet another opportunity of meeting so many old friends again at the Bank's headquarters here in Washington.

I am particularly happy to greet two new member countries, Indonesia and Israel, both of whom have joined us since we last met.

[6 ]

We look forward here not only to the formal deliberations of this Annual Meeting but also to the renewal of personal contact with the Governors that has proved so re­warding in the past. We greatly value the opportunity which discussion, formal and in­formal, gives us to evaluate the Bank's work, and to exchange and develop new ideas that can be translated into action in the perform­ance of the Bank's day-to-day tasks.

Let me say a special word of welcome to our guests. We are favored at this meeting by the attendance of many distinguished private citizens of our host country and of 16 other countries in both hemispheres. I hope these few days will give our guests the opportunity to meet each other and to com­pare notes on matters of common interest, as well as to acquaint themselves with the af­fairs of the Bank.

In its eighth full year of operations, the Bank has continued to be a growing institu­tion. The statistics in which we customarily summarize our activities are still moving along upward curves. I should like to men­tion a few of the figures to you quickly:

Our annual report shows more loans-26-and a greater amount of lending-the equivalent of some $324 million-than in any other fiscal year. Since the end of the fiscal year, we have maintained that pace and a little bit better, with $90 million more of lending. Our gross total of loan commit­ments, since the beginning of operations, now amounts to something over $2 billion.

Disbursements on loans, at $302 million in the last fiscal year, moved faster than at any time since the exceptional requirements of the reconstruction loans made in 1947. Disbursements repayable in currencies other than United States dollars, equivalent to $82 million, were markedly higher than in any preceding year.

It was the Bank's most active year of borrowing. In the 12 months since the last Governors' Meeting, we have sold eight issues of bonds in various currencies amounting to nearly $300 million.

The Bank has continued, at the request of member countries, to give advice on for­ward steps in development-particularly in the formulation of development programs and on the mobilization of local capital. Three of our general survey missions were organized during the year to draw up pro­gram recommendations: one to Nigeria, headed by Mr. Broches, a senior member of the Bank's staff; one to Malaya and Singa­pore, for which we were fortunate enough to have the services of Sir Louis Chick as Chief

[ 7 ]

of Mission; and one to Syria, under the dis· tinguished leadership of our good friend, a former Governor of the Bank, Dr. Pieter Lieftinck. The report of the mission to Nigeria was made available earlier this week, in Lagos and Washington, and the other re­ports are nearing completion.

Two features of the Bank's operations during the year seem to be particularly sig­nificant and encouraging. The Bank was established, among other things, to mobilize capital on an international basis, and to do it in close cooperation with private capital. We have done both with increasing success.

Most of our lending during the year was based on funds raised in the private market. This, of course, was not new: the Bank's bonds for some time have served as one of the chief means whereby private loan capital is deployed internationally.

What was new, however, was the scale on which the Bank was able to put portions of its loans into private hands. We lent, as I have mentioned, $324 million during the year. At the same time, we had sales from our portfolio and direct participations by private investors in new loans amounting to more than $34 million.

One striking fact about these transac­tions was that in nearly 80 percent of them, the other investors assumed the risk, without any guarantee by the Bank. A second striking fact was that participations, all of these without Bank guarantee, were enlisted in five of our seven most recent loans. I think it is safe to say that private participa­tions, rare in preceding years, will become a continuous and growing part of the Bank's operations from now on.

A still more conspicuous development during the year was the increasing interna­tionalization of the Bank's financial re­sources. The operations of the Bank, in the beginning, were inevitably based on dollars drawn from the United States capital sub­scription and from the capital market in the United States. From this base-which is still, and for some time must continue to be, our most important base-we took important forward steps in 1951, when we sold our

first public offering of non-dollar bonds, in the United Kingdom, and in 1952, when the whole of the original Canadian dollar sub­scription to our capital became available for lending.

At our Annual Meeting in 1953, I was able to report that the European members of the Bank were releasing their currencies to us in encouraging amounts. N ow I can re­port a like development in the Bank's access to capital markets outside the United States.

Of the eight bond issues I mentioned a moment ago, three were sold for United States dollars; but investors outside the United States took up nearly half the amount offered-more than $100 million of a total of $225 million. Our most recent issue, a $50-million placement of five-year 2% percent bonds concluded earlier this week, was a United States dollar issue sold entirely out­side the United States. Subscriptions amounting to approximately $78 million were received for these bonds and allocations made to investors in 23 different countries. Bonds of this issue traded yesterday in New York at 101, a full point premium over the issue price of par. Five other offerings, during the twelve months, were sold for cur­rencies other than United States dollars: one issue for Canadian dollars, two for Swiss francs, one for sterling, and one for Nether­lands guilders, which was our first quotation in that currency.

Of all Bank bonds sold in the last twelve months, investors outside the United States have bought three-fifths.

And of every $1 million which the Bank has had available for lending since the be­ginning of its operations, $400,000 has now originated outside the United States.

These important developments in the operations of the Bank are symptomatic of the improvement in world production and trade during the last five years, especially in Europe. With some regrettable exceptions, financial stability has largely been achieved. The debilitating effects of inflation, both on the balance of payments and in distorting patterns of production, have been largely eliminated. The complex and uneconomic

[8 ]

system of bilateral payments agreements and of barter arrangements is being dismem­bered. The dollar problem, if not finally solved, seems to be coming under control.

The Netherlands is an outstanding ex­ample of the extent of the improvement in the economic position of our European mem­bers. The Bank's second largest loan was granted to the Netherlands in 1947 to aid in reconstruction. Since then the Dutch posi­tion has so improved that the government has been able to agree to the release to us of 100 million guilders from the Dutch subscrip­tion to our capital as well as to the flotation by the Bank of a 40 million guilder bond issue in the Dutch capital markets. Recently the Netherlands government has also made prepayments on the 1947 loan amounting to $52% million.

I would like also to call your attention to the case of Austria. After the end of the war, Austria was beset by difficulties, not of her own making, which were discouraging to any foreign investor. In 1949 she needed almost $200 million in foreign aid to cover her external deficit; but today she has achieved equilibrium in her balance of pay­ments.

In July the Bank made its first loan to Austria and this loan, incidentally, is another illustration of how the improvement in Eu­rope's economic position has affected the Bank's operations. It will be disbursed en­tirely in European currencies, largely in Italian lire, Dutch guilders and Swiss francs and it is the seventh of the Bank's loans to be disbursed entirely in currencies other than dollars.

These are examples of encouraging progress. Especially during the past two years, our European members have more and more resumed their role of exporters of capital to the world. They are once again able to produce and finance their share of the capital equipment needed to hasten the de­velopment of other countries. The Bank welcomes this greater availability of credit and, to the extent that private capital cannot directly meet the needs, we expect to play our full part in promoting this increased flow of

capital into the channels where it will do the most good.

The Bank itself has large amounts of member currencies which so far have been wholly or partly inconvertible and therefore of limited use. Let me repeat what I have said so often, that I consider the liberal re­lease of these currencies to be of extreme importance. I want to add now that I believe that the time has come when the con­ditions attached to the Bank's use of these currencies should be reviewed and relaxed to the greatest extent possible. The Bank, as well as the Fund, has a vital interest in all evidence of progress toward convertibility because it is at the same time the promise of further expansion of long-term investment in development.

Some of the currencies we need will come, I hope, from the greater availability, without restriction, of the capital subscrip­tions of member countries. We will also go on raising capital by issues of our bonds.

There is still another way in which we may utilize these capital resources. It is en­tirely natural that, in a world in which finan­cial equilibrium has been disturbed for a long time, the confidence of investors re­turns only gradually and that capital is therefore lent at short term. We offer a ve­hicle for capital of thi'3 kind in the form of loan participations and sales of our bor­rowers' securities from our portfolio; and as I mentioned some moments ago, these activi­ties are increasing rapidly. If private funds are still hesitant about undertaking long­term commitments, loan participations can be arranged with such funds taking short and medium term maturities while the Bank itself takes the long maturities.

We must, at this stage of the world's recovery, I think, remember the conse­quence of what happened in the 1920's and, bearing that example in mind, we must real­ize that the growth of credit brings its own problems. As the availability of capital and capital equipment has risen, we have passed from a seller's to a buyer's market and a competitive race is developing among sup­pliers all over the world. This takes the

[ 9 ]

form not only of competition in terms of price, quality and delivery date, but also competition in the offer of medium-term sup­pliers' credits. The Bank does not know­nor, I think, does anyone know-the exact volume of credits of this kind now outstand­ing. But, as one positive measure toward meeting the situation, I plan to explore the possibility of establishing an information service which would centralize all available data on the total volume of suppliers' credits outstanding.

Suppliers' credits, I need hardly say, are an appropriate type of international financ­ing when applied to the proper transactions. But they can be misused and over-used, and there is some disturbing evidence that this is happening-too much credit given, under the pressure of competition, sometimes on inap­propriate terms and for the wrong purposes.

The situation, in my view, is becoming serious. The danger is that bad credit will drive out good, and tend to bring interna­tional investment back into disrepute-this at a time when the world is still negotiating adjustments of debts incurred during the earlier period of excessive borrowing, over­eager lending and mis-investment to which I referred just now.

Suppliers' credits can serve a useful purpose in financing the normal, short-term flow of imports or in financing investment projects which can pay their way within the term for which the credit is given. But, although the availability of these credits may seem to present an opportunity to speed the rate of development, there is a risk that the use of short-term finance may be pressed beyond these limits. When this happens, the result is likely to be unfortunate.

N or can the balance of payments aspects of these transactions be overlooked. Expe­rience teaches us that it is imprudent to count on a steady flow of capital year after year. Reliance on suppliers' credits, indeed, in gen­eral means reliance on something particularly volatile. The importing country may run into payments difficulties that check further investment from outside. The exporting countries themselves may experience pay-

ments difficulties that force them to insist on cash payment. Or a boom in the world or home market may make it possible to sell for cash and reduce the need to extend credit. There is the risk, in other words, that the borrower may have raised his rate of invest­ment only to find that he must later make, perhaps. a drastic cutback and that what was looked forward to as a period of sustained economic advance may end as a period of stagnation or, even, of retrogression.

The manner in which suppliers' credits are offered, moreover, sometimes results in projects being undertaken which are far from the highest priority in developmental needs. The exporting country wishes to boost its exports and therefore offers credits for financing a project using its equipment. The manufacturing supplier of equipment naturally welcomes any opportunity to in­crease his sales and he can certainly not be blamed if he takes advantage of whatever credit facilities may be made available. And the importing country may feel that the credit, being available, should be accepted even if not for the most useful of purposes nor on the best of terms and even if, as often happens, under these arrangements a higher price for the goods must be paid. This is contrary to the interests of the importing country and may result in slower rather than faster development.

Long-term capital funds represent, in general, the most appropriate method of fi­nancing development projects reqUIrmg heavy capital equipment, from the point of view both of the nature of the projects them­selves and of the impact on the borrowing country's balance of payments. But any po­tential long-term investor-and not only the International Bank-must take into account the total external debt burden of the borrow­ing country. So an excessive use of short or medium term credit must necessarily dimin­ish a country's access to long-term capital funds. In short, the indiscriminate use of credit of this kind may increase the costs of development, may interrupt the continuity of effort, may upset the balance of investment, and may make the goals of investment harder, and not easier, to reach.

The increase in competition in suppliers' credits also has its dangers for the exporting countries. Suppliers' credits are usually financed only in minor part by the suppliers themselves. Most of the industrial nations­and I include not only European countries but the United States, Canada and Japan­now have one or both types of official insti­tutions to give financial aid to exports. One type finances the export of capital goods; the other, without supplying capital, underwrites the risk. These suppliers' credits are usually made largely at the ultimate risk of the gov­ernment of the exporting country.

I would like to make clear, of course, that I am not talking primarily about the flow of private investment capital. If the supplier were venturing more of his own capital, he would necessarily have to be more concerned with the financial soundness of the investment and with the creditworthiness of the country. But the result of the supplier's relative freedom from risk is that he is con­stantly entreating his own government to grant more liberal credit facilities. In each of the exporting countries governments hear the complaint that other governments are being more liberal. So a race is developing, a race in which none of the competitors can win because the faster each one goes, the faster all the others go.

Indeed, I think we are approaching a sit­uation about which a warning was sounded ten years ago at Bretton Woods. The spokes­man of one of the delegations there pointed to the danger, saying that, in a time of pres­sure for exports, "countries would embark on bilateral credit arrangements no doubt linked with deals relating to the purchase and sale of goods; and as soon as certain countries began to adopt this course others would find that they had to follow suit to protect their trade interests. It is difficult," the spokesman went on to say, "to imagine a more fruitful source of international dissen­sion than a competitive trade and credit expansion program of this character."

[10 ]

I certainly do not wish my remarks about the dangers inherent in an undiscrim­inating use of credit to be interpreted as a warning against a sound increase in credit

accompanying a healthy expansion of inter­national investment, particularly in the pri­vate sector. At the moment, I am happy to say, the world is enjoying relatively prosper­ous conditions of high employment and trade and the total volume of international credit is probably still expanding. But, if these conditions are to continue and if the flow of international trade and investment is to re­flect a growing and dynamic world economy, the world's trade policies will need to be liberalized. Last year I said that "merely to refrain from reversing the downward trend in United States import tariffs over the last two decades would not be enough to put in­ternational trade on an even keel"; and that there was need for a further reduction in the obstacles to imports.

I share the disappointment of many of you that the United States Government did not find it possible to put into effect this year the trade liberalization features of its foreign economic policies, and I welcome the Presi­dent of the United States' recent statement, which was reaffirmed by Secretary Hum­phrey, that it is his intention to give high priority to them in next year's legislative program.

The first of the Annual Meetings of the Governors at which I had the honor of ad­dressing the Governors was six years ago. I hope the Governors will forgive me if, as a privileged witness of some of the events of the past six years, I end these remarks briefly with a personal and impressionistic retrospect.

In 1949, the ruins of war were still ap­parent in Europe. Famine was abroad in some parts of the world and the threat of it was only thinly veiled in other parts. Recon­struction was far from complete; the or­ganized attack on development problems, evident in many countries now, had scarcely at that time begun.

The contrast today, as we all know but perhaps too seldom remember, is quite re­markable. The facts about recovery in Eu­rope are too familiar to need repetition; let me remark only on the obvious: that the revival of production there has been a major

factor in the exchange of goods throughout the world at a rate never before experienced.

Advances in the underdeveloped coun­tries have been harder to observe-if for no other reason than that these countries extend over so much of the earth-and the advances have in any case been uneven. But to me they are a source of immense encouragement.

The process of economic development is not easy to set in full motion, involving as it does a host of technical skills and a complex of behavior patterns that took centuries to evolve in the industrial world of today. Yet the process is accelerating.

If we had a magic carpet here this morning to take us all around the globe, I think we would be struck by the many evi­dences of this progress. We would see trac­tors working on land that before had only known the bullock, and we would see small factories working where industry had never appeared before. We would see truck roads replacing donkey and camel trails and new farms being cleared along these roads. In the mountains, we would see streams being harnessed to produce energy, and, in the deserts, hundreds of miles of pipe bringing natural gas to productive use. Down in the villages, we would see grain being milled by machinery, instead of being pounded out by hand, and electric light replacing the old oil lamp.

[11 ]

I'd like to give you one small illustration of what I am talking about. This concerns one of our loans to the Federal Electricity Commission in Mexico--and the installation of a small diesel power plant of only 600 kilowatts generating capacity. We financed the installation of this plant in the rural town of Tecuala, in Mexico's west coast area. In three years' time, with this small diesel plant, here are some of the results: industrial users of electricity in Tecuala have risen from 3 to 33; the town has acquired a public library, a daily newspaper, a radio station, and a night school; Tecuala's population has tripled, and the number of students in its schools has increased seven times. The municipal hos­pital has installed refrigerators and put in a modern fluoroscope, which is the only one

within a radius of 60 miles. The mayor of the town recently said: "I have witnessed our emergence from the dark ages into an age of light."

Now, as I said, the advance in develop­ment has been uneven. In SOme areas it has not occurred at all, and in others the gains have as yet been meager. And we must re­member, as one of the Governors well said here a year ago, that we are faced today by a revolution of expectancy.

In many parts of the world, people are less and less content to live in the past or to think in the past. The way to deal with a revolution of expectancy is to turn it into a revolution of achievement and progress.

It is in this kind of a revolution that the Bank can see itself playing a part. In the Annual Report before you, you will find the full range of the Bank's interests displayed-

from the mobilization of capital, internally and internationally, to the application of capital to bring about new production and trade. Indeed, in this Report, you can sur­vey our technical and financial assistance to development institutions in many countries, to the construction of electric power capacity of something over three million kilowatts, to the improvement of some millions of acres of farm lands, to the improvement of services on railways in a dozen countries in five continents.

By comparison with what usefully can be done, these figures are modest enough, and I have no illusions about the magnitude and the difficulty of the tasks that face our mem­ber countries and the Bank. What I do have is evidence that convinces me, more than ever, that these tasks can be accomplished, and that the revolution of achievement can be won.

ADDRESS BY THE CHAIRMAN AT THE JOINT CLOSING SESSION, SEPTEMBER 29, 1954

It is my pleasure and privilege before adjourning this meeting to make a few clos­ing remarks on behalf of my colleague, Mr. Holtrop, and myself.

Let me first of all thank Mr. Rooth and Mr. Black and the Executive Directors of the Fund and Bank for the able manner in which they have conducted the affairs of our two institutions during the past year.

I should like to extend our thanks also to the staffs of the Fund and the Bank and particularly to Mr. Horne and Mr. Mendels, for the efficient work they have done.

As to the preparation of this meeting, our sincere gratitude is due to the Executive Directors of both Fund and Bank for their excellent Annual Reports and to Mr. Rooth and to Mr. Black for the valuable addresses with which they have presented these docu­ments. These reports and addresses have given us the foundation on which to base our discussions.

[ 12]

The Governor for the United Kingdom, inspired by the name borne by this hotel, has alluded to the atmosphere of puritan sim­plicity in which the old Pilgrim Fathers lived and worked. It is not given to us to work in such an atmosphere-but pilgrim fathers in a sense we are. Our journey on the path of international cooperation may well be com­pared to a pilgrimage. Our progress on that path may be slower than we would wish it to be, but progress there is, clear and unmis­takable.

On the road of this pilgrimage, our Annual Meeting is like an oasis, a place where everyone profits from food and drink, and not only in the material sense but, more important, in the spiritual sense, the ex­change of ideas.

Our discussions on various problems have been interesting and instructive. Espe­cially valuable, in my opinion, was the panel discussion on prospects for private interna-

tional investment. But I am sure we have greatly benefited by all of the deliberations held in the formal sessions and also privately.

Those among us who might feel some­what disappointed because we have not solved our major problems I should like to remind of the fact that these problems are not such that can be solved overnight.

I think there is no one here who expected to be able to return to his country and tell the people at home that convertibility was going to be an established fact. Weare gratified that Mr. Rooth has promised that the suggestions at this meeting will be studied. We are looking forward to the Fund's constructive proposals.

The other major problem, as I see it, is the problem of the effective and balanced development of the world's productive re­sources. The Bank, starting from the bot­tom, is working towards that end. We all have been encouraged by the discussion of the Bank's Report and it is obvious that the Bank will successfully follow the way out­lined by Mr. Black and the Executive Di­rectors.

In this connection I may perhaps refer to the expression by Mr. Black of his anxiety about the growing tendency of exporting countries to compete by granting excessive medium-term credits.

The Bank's achievement in the field of development is a solid one. We all realize that, even if we have made progress and will continue to make progress in this direction, there always will be more miles to go as we raise our standards along with the progress we make.

I want to conclude by saying that when the Pilgrim Fathers sailed out for America not even the most imaginative amongst them

could have foreseen the outcome of their en­terprise. To a certain extent, the often referred to founding fathers of the Fund and Bank could not foresee the outcome, and perhaps are of the opinion that our genera­tion did not fully live up to their expecta­tions. That may be the case. But they are perfectly sure that all of us are convinced that their conception of a world-wide col­laboration in monetary and financial fields was fundamentally right.

We have still to go a long way. If we are to make any headway, we must not forget that in the background of all our technical consultations and discussions there must be the inspiring conviction that the people we represent will only benefit by close coopera­tion; that means, by better understanding, good will, and friendship among all who work in international institutions.

I trust that this meeting has furthered the willingness to cooperate and has formed ties of friendship between Governors and officials, and a willingness to understand each other's point of view.

I ask my fellow Governors to keep in mind the big issue we stand for. That is peace and good will amongst our nations.

[13 ]

In the name of all of us, I should like to place on record our gratitude and apprecia­tion for the hospitality shown to us once again by the Government of the United States. I wish to thank the members of the Board of Governors, the Executive Directors, the managements and staffs of Fund and Bank, in short, all who have participated in this conference, for their contribution.

And now I use the souvenir gavel which has been presented to me to say that this Ninth Annual Meeting of Fund and Bank is adjourned.

COMMITTEE REPORTS

JOINT PROCEDURES COMMITTEE Chairman _____________________________________________________________________ NETHERLANDS Vice C hairman ______________________________________________________________________ CEYLON Reporting M ember __________________________________________________________ EL SALVADOR

Other Members: CANADA, CHILE, CHINA, ETHIOPIA, FRANCE, INDIA, NORWAY, UNITED KINGDOM, UNITED STATES

Report No.1

September 23, 1954

The Joint Procedures Committee, at its first meeting at 3 :30 p.m., on September 23, 1954, considered the matters of business which had been proposed for the Ninth Annual Meeting of the Boards of Governors of the Fund and the Bank.

I have the honor to submit the following recommendations of the Committee:

I. Business of the Board of Governors of the Fund1

II. Business of the Board of Governors of the Bank

A. Agenda

The Committee recommends: 1. That the agenda attached as Annex IV2 be adopted. 2.. That, after the adoption of the initial agenda, proposed additions to the agenda

be submitted in writing to the Joint Procedures Committee, through the Chair­man, for its recommendations.

B. Committee The Committee recommends:

1. That a Committee on Finance and Organization be established as shown in Annex V.3

2. That the items shown in Annex VI4 be referred to the Committee on Finance and Organization for report to the Board of Governors, including the report of the Executive Directors, dated August 24, 1954, on the status of the unpaid portion of the capital subscription of China, submitted for the information of the Board of Governors.

C. Bank Discussions The Committee recommends:

1. That there be a discussion by the Governors on the Annual Report and on the activities of the Bank.

2. That there be an informal panel discussion on the subject of "Prospects for Pri­vate International Investment", as described in Annex VII.6

1 Fund business omitted. 2 See page 16; Annexes I-III related to business of the Fund. S See page 16.

[14 ]

~ See page 17. 6 See page 17.

D. Fifth Regular Election of Executive Directors

The Committee considered the Report of the Executive Directors of the Bank dated Au­gust 10. 1954, regarding the Fifth Regular Election of Executive Directors of the Bank. The Committee recommends the adoption of the draft resolution relating to the Fifth Regular Election of Executive Directors of the Bank,1 attached thereto, and the proposed rules for the conduct of that election2 referred to in said draft resolution.

III. Procedural Matters of Joint Concern to the Fund and the Bank

A. Order of Business

The Committee recommends: 1. That the order of business tentatively scheduled in Annex VIIP be adopted. 2. That the Secretaries of the Fund and Bank, when authorized by the Chairmen,

may change the schedule as necessary.

B. Conduct of Meeting

The Committee recommends that the provisions relating to the conduct of the Meet­ing, as contained in Annex IX,4 be approved.

C. Procedural Items

A later report of this Committee to the Joint Boards of Governors will deal with: 1. Place and date of Tenth Annual Meeting. 2. Election of Officers and Joint Procedures Committee for 1954-55.

Approved:

/s/ J. VAN DE KIEFT

/s/ M. W. HOLTROP Chairmen

(NETHERLANDS)

/s/ CARLOS J. CANESSA Reporting Member

(EL SALVADOR)

This Report was approved and its recommendations were adopted by the Boards of Governors at the Joint Session on September 24, 1954.

1 See page 28. 2 See page 33. S See pages 18 and ii for provisional and final schedules, respectively. 4 See page 19.

[ 15]

ANNEX fVt

AGENDA

1. Ninth Annual Report

2. Financial Statements and Annual Audit (Appendices A - H of Ninth Annual Report)

3. Administrative Budget for Fiscal Year ending June 30, 1955 (Appendix I of Ninth Annual Report)

4. Allocation of Income to Reserve

5. Fifth Regular Election of Executive Directors

6. Application of the Republic of Korea for Membership in the Bank

7. Application of Afghanistan for Membership in the Bank

8. Place and Date of Tenth Annual Meeting

9. Election of Officers and Procedures Committee for 1954-55

ANNEX V

COMMI'ITEE ON FINANCE AND ORGANIZATION

C hai rma n _____________________________________________________________________________________________ SYRIA

Vice Chairman ____________________________________________________________________________________ J APAN

Reporting M emb er ____________________________________________________________________ NICARAGUA

AUSTRIA

BELGIUM

BRAZIL

CHINA

COSTA RICA

DENMARK

FRANCE

GREECE

INDIA

IRAN

1 Annexes I-III related to business of the Fund.

[ 16 ]

LEBANON

SOUTH AFRICA

THAILAND

UNITED KINGDOM

UNITED STATES

ANNEX VI

COMMITTEE ON FINANCE AND ORGANIZATION

Terms of Reference

For consideration and report to the Board of Governors: 1. Financial Statements and Annual Audit

(Appendices A - H of Ninth Annual Report)

2. Administrative Budget for Fiscal Year ending June 30, 1955 (Appendix I of Ninth Annual Report)

3. Allocation of Income to Reserve

4. Application of the Republic of Korea for Membership in the Bank

5. Application of Afghanistan for Membership in the Bank

6. Status of Unpaid Portion of Capital Subscription of China

ANNEX VII

INFORMAL PANEL DISCUSSION

Subject of Discussion

Prospects for Private International Investment

Chairman of Panel: GEORGE M. HUMPHREY

Secretary of the Treasury of the United States

RICHARD AUSTEN BUTLER

Chancellor of the Exchequer of the United Kingdom

CHINTAMAN DESHMUKH

Minister of Finance of India

EUGENIO GUDIN

Minister of Finance of Brazil

[ 17 ]

FRIDAY

SATURDAY

MONDAY

TUESDAY

A.NNEX VIII

PRO V I S ION A L S C H E D U L E'

Friday, September 24-Wednesday, September 29 (Thursday, September 23-3 :30 p.m.--Joint Procedures Committee)

-September 24-10 :00 a.m.-Opening Ceremonies First Session ( Joint)

Report of Joint Procedures Committee

-11 :30 a.m.-Fund Board-Annual Report: Address by Managing Director of Fund

-Afternoon -(FREE for private conferences)

-September 25-10 :00 a.m.-Bank Board-Annual Report: Address by President of the Bank

-10 :45 a.m.-Bank Committee on Finance and Organization

-11 :30 a.m.-Discussion on Fund Annual Report

- 3 :00 p.m.-Fund Committee on Finance and Organization

-September 27-10 :00 a.m.-Discussion on Bank Annual Report

- 3 :30 p.m.-Discussion on Fund Annual Report

-September 28-10 :00 a.m.-Bank Informal Discussion

-12 :00 noon-Fund Board Managing Director's Concluding Comments Committee Reports

- 3:00 p.m.-Bank Board President's Concluding Comments Committee Reports

- 4:00 p.m.-Fund Board Election of Executive Directors

- 5 :00 p.m.-Bank Board Election of Executive Directors

WEDNESDAY -September 29-Morning -(FREE for private conferences)

-12 :00 noon-Joint Procedures Committee

- 3 :30 p.m.-Closing Session (Joint)

1 The provisional schedule was subsequently amended; for final schedule see p. ii.

[18 ]

ANNEX IX

PROVISIONS RELATING TO THE CONDUCT OF THE MEETING

Attendance

1. Joint sessions of the Boards of Governors of the Fund and the Bank, the sessions at which the Annual Reports are presented and discussed, and the informal discus­sions shall be open to the press and public. Other sessions of the Boards of Gov­ernors and committee meetings shall be closed to the press and public.

2. Meetings of the Joint Procedures Committee shall be open only to Governors and Alternate Governors and one adviser for each member country represented on the Committee.

3. Committee meetings, with the exception of those of the Joint Procedures Committee, shall be open to Delegations who are not members of the Committee.

4. Accredited observers may attend all sessions of the Boards of Governors and their committees, other than the Joint Procedures Committee, unless decided otherwise. Observers wishing to speak at a meeting are requested to consult the Chairman in advance.

5. Sessions of the Boards of Governors a.nd committee meetings shall be open to such members of the joint secretariat and the technical staffs as may be necessary for the conduct of their business.

Public Information

6. The Chairmen of the Boards of Governors, the Managing Director of the Fund and the President of the Bank are authorized to communicate to the press such infor­mation concerning the proceedings of the Ninth Annual Meeting as they deem suit­able. Copies of such communications shall be available to any Governor on his request.

Records

7. The Secretaries of the Fund and the Bank are authorized to prepare verbatim tran­scripts of the proceedings of sessions of the Boards of Governors and their commit­tees, and of informal discussions. The transcripts of committee proceedings, and any summary records thereof, will be confidential and available only to the Chair­men, the Managing Director of the Fund and the President of the Bank, unless otherwise decided.

8. Reports of committees shall be signed by the Committee Chairman and the Reporting Member.

[ 19 ]

JOINT PROCEDURES COMMITTEE

Report No.2

September 29, 1954

I have the honor to 8ubmit the Report of the Joint Procedures Committee on its second meeting which was held at 12 :00 noon on September 29, 1954.

I. Place and Date of Tenth Annual Meeting

The Committee considered the place and date of the Tenth Annual Meeting.

The Committee noted that last year the Boards of Governors had approved the Commit­tee's recommendation that the Tenth Annual Meeting be held outside Washington, the place to be determined this year. Several invitations were considered and the Committee decided to recommend that the invitation of Turkey be accepted. The Committee also decided to recommend that the Tenth Annual Meeting should be convened in the latter part of Septem­ber, 1955.

I have the honor, in the name of the Committee, to recommend the adoption of the draft resolutions attached hereto as Annex V

II. Officers for Ensuing Year

The Committee next considered the question of officers of the Boards of Governors for the ensuing year, and recommends that the Governor for Egypt be elected Chairman and the Governors for China, France, India, the United Kingdom and the United States be elected Vice-Chairmen. In the name of the Committee, I recommend to the Boards of Governors the adoption of the draft resolutions attached hereto as Annex IV

III. Composition of Procedures Committee for Ensuing Year

The Committee then considered the composition of the Procedures Committee for the ensuing year. I have the honor, in the name of the Committee, to recommend to the Boards of Governors the adoption of the draft resolutions attached as Annex 111.1

/s/ J. VAN DE KIEFT /s/ M. W. HOLTROP

Chairmen (NETHERLANDS)

/ S / CARLOS J. CANES SA Reporting Member

(EL SALVADOR)

This Report was approved and its recommendations were adopted by the Boards of Governors at the final Joint Session on September 29, 1954.

1 See Resolutions Nos. 90 to 92 on page 32.

[20 ]

REPORT OF COMMITTEE ON FINANCE AND ORGANIZATION

September 27, 1954

C ha irma n ______________________ ________________________________________ ----------______________________ S YRIA

Vice C hai rman ______________________________ ______________________________________________________ J AP AN

Reporting M emb er __________________________________________________________________ NICARAGUA

Other Members: AUSTRIA, BELGIUM, BRAZIL, CHINA, COSTA RICA,

DENMARK, FRANCE, GREECE, INDIA, IRAN, LEBANON, SOUTH

AFRICA, THAILAND, UNITED KINGDOM, UNITED STATES.

I have the honor to report that the Committee on Finance and Organization met at 10 :45 a.m. on Saturday, September 25, 1954, and considered the following Agenda items:

1. Financial Statements and Annual Audit 2. Administrative Budget for Fiscal Year ending June 30, 1955 3. Allocation of Income to Reserve 4. Application of Republic of Korea for Membership in the Bank 5. Application of Afghanistan for Membership in the Bank 6. Status of Unpaid Portion of Capital Subscription of China

The President of the Bank commented briefly on several of the matters before the Com­mittee.

Financial Statements, Annual Audit and Administrative Budget

The financial statements and annual audit attached as Appendices A to H inclusive, to the Ninth Annual Report, were then considered.

The Committee also considered the Administrative Budget for the fiscal year ending June 30, 1955, attached as Appendix I to the Annual Report, and a supplemental Report giving additional information concerning the Budget. The Budget was prepared in accord­ance with Section 19 of the By-Laws and approved by the Executive Directors.

In the name of the Committee, I have the honor to recommend to the Board of Governors the adoption of the draft resolution on the Financial Statements and Budget attached hereto as Annex 1.1

Allocation of Income to Reserve

The Committee considered the Report of the Executive Directors, dated August 10, 1954, on the allocation of income to reserve and concurs in the recommendations of the Executive Directors.

In the name of the Committee, I have the honor to recommend that the Board of Gover­nors note with approval the allocation of the net income of the Bank for the fiscal year ended June 30, 1954, to the supplemental reserve against losses on loans and guarantees, in accord­ance with resolutions previously adopted by the Board of Governors and by the Executive Directors.

1 See Resolution No. 87 on page 28.

[ 21 ]

-_ .. " --------------------------

Application of the Republic of Korea for Mem bership in the Bank

The Committee then considered the Report of the Executive Directors, dated August 6, 1954, concerning the application of the Republic of Korea for membership in the Bank and recommends the adoption by the Board of Governors of the draft resolution attached to that Report.1 The Governor for India abstains from this recommendation of the Committee.

Application of Afghanistan for Membership in the Bank

The Committee then considered the Report, dated September 23, 1954, of the Executive Directors concerning the application of Afghanistan for membership in the Bank.

I have the honor, in the name of the Committee, to recommend the adoption by the Board of Governors of the draft resolution attached to that Report.2

Unpaid Portion of Capital Subscription of China

The Committee next considered the report of the Executive Directors, dated August 24, 1954, concerning the unpaid portion of the capital subscription of China and recommends that the Board of Governors note that Report. The Governor for India abstains from this recommendation.

Marketing Activities of the Bank

A statement on the marketing activities of the Bank was made to the Committee by the Director of Marketing.8

/s/ HUSNI A. SAWWAF Chairman

(SYRIA)

/s/ ALEJANDRO BACA-MuNOZ Reporting Member

(NICARAGUA)

This Report was approved by the Board of Governors on September 28,1954.

1 See Resolution No. 88 on page 28. 2 See Resolution No. 89 on page 30. B See page 23.

[22 ]

REPORT ON MARKETING ACTIVITIES OF THE BANK

Statement by the Director of Marketing of the Bank to the Committee on Finance and Organization, September 25, 1954

Two of the most important developments in the Bank's operations in the past year oc­curred in the Bank's financing. One was a considerable geographical expansion in the market for the Bank's bonds; the other was the increasing participation of investors in the Bank's loans, both through direct participations and through purchases from portfolio. President Black has already mentioned these developments to the Governors; this report describes them in somewhat more detail, and covers other activities in the field of financing that have been of interest to the Bank.

Since the last meeting of the Board of Governors, the Bank has sold eight new issues of bonds amounting to the equivalent of nearly $300 million. This was a larger total of bonds than the Bank has sold in any other twelve months. They were offered in more capital mar­kets than in any previous year, and resulted in the broadest distribution of its bonds that the Bank has ever had. Of the amount sold, investors outside the United States purchased 59 per cent.

Three issues were of United States dollar obligations. These amounted to $225 million. One issue, of $100 million in January, was sold primarily in the United States market. Of a $75 million issue of three-year bonds sold just a year ago, however, more than half were bought outside the United States. And the Bank's most recent dollar issue, $50 million of five-year bonds, was sold entirely outside the United States.

This last issue was oversubscribed by $28 million. It was sold in 23 different countries on five continents, and achieved the widest geographical distribution of any World Bank is­sue. It is interesting to note that some of this issue has found its way back to the United States, and currently a good premium over the issue price is bid for them in the New York market.

Five issues were sold during the twelve months for currencies other than United States dollars, an unparalleled experience in the Bank. The Bank sold two Swiss franc issues to­taling 100 million Swiss francs, one issue of 25 million Canadian dollars, a sterling issue of five million pounds, and a Netherlands issue of 40 million Dutch guilders. It is encouraging that the European issues were heavily subscribed not only in Switzerland, where the Bank is well known, but in the London market, where the Bank had not had a sterling issue for more than three years, and in the Netherlands market, where the Bank was selling guilder bonds for the first time.

Taken together, these five issues amounted to the equivalent of $75 million, and they raised the percentage of the Bank's bonds outstanding in currencies other than United States dollars from 10 per cent at June 30, 1953 to 16 per cent now.

The total indebtedness of the Bank today amounts to the equivalent of $851 million. It is interesting to note that only three corporations in the United States, according to available information, have outstanding a larger amount of long-term debt. Of the Bank's direct obli­gations, approximately 41 per cent were held outside the United States, with the 59 per cent of United States holdings divided as follows: insurance companies, savings banks, and pen­sion and trust funds, in about equal proportion, about 54 per cent; commercial banks and miscellaneous investors, the remainder.

[ 23 ]

---'-"-------------_ ....

In the United States market, favorable conditions have prevailed over the past year. As a result, the price of United States Treasury and other high-grade bonds rose sharply above the levels prevailing in the previous fiscal year. The Bank's issues participated fully in this price movement and won wider acceptance by practically all types of investors.

To continue developing a market capable of absorbing enough bonds to meet the growing needs of the Bank, the Bank still requires legislation in some states of the United States to make the bonds legal for purchase by additional types of investors. 'l'here is definite prog­ress in this direction, the most recent example being legislation passed by the United States Congress to permit insurance companies in the District of Columbia to buy the Bank's bonds. This is of real importance, since in certain states legal investments for particular funds are based on the District of Columbia requirements. The new law will open the door to many more worthwhile purchasers.

The majority of state legislatures next meet in 1955, and efforts will be continued to ob­tain the necessary legislation in those important areas in which the Bank's securities are not fully eligible for investment. This legislation will be designed in some cases to cover in­surance companies and commercial banks, but especially will be intended to cover various state pension funds. These funds are continuing to increase at a very rapid rate. They are becoming one of the most important segments of the investment market, especially for high­grade bonds. While these funds used to be interested primarily in obligations of the munici­palities within their own state borders, they are now seeking larger returns through the pur­chase of public utility and other corporate securities. And compared with these securities, the Bank's bonds are particularly attractive.

One of the outstanding developments in the past year, as mentioned earlier, has been the growing interest of other investors in participating in new loans by the Bank and in pur­chasing borrowers' obligations from the Bank's portfolio-both without the guarantee of the Bank. These transactions, of course, serve to augment the Bank's lendable funds and, of far greater importance, they give evidence of increasing confidence in the soundness of its operations.

The total of such transactions, at present, amounts to $65 million equivalent, and of this, $35 million has been effected during the eight months since January first. Much of this increased interest in purchasing or participating in Bank loans has been shown by leading commercial banks and other investors in the United States; but in its loan of some months ago to the Sui Gas Transmission Company in Pakistan the Bank had its first direct participation by banks outside the United States, in this case from six British banks. These transactions furnish an important opportunity for private capital to participate in interna­tional investment, and are expected to become an increasingly important part of the Bank's operations.

It was reported to the Board last year that the Director of Marketing had had the privi­lege of visiting certain member countries to study their local capital markets. He revisited some of these countries this year, and for the first time went to a number of Central American countries with the same objective in mind. The progress seen in some of these markets is very encouraging and marked by many interesting possibilities.

There have also been many helpful visits, both in New York and in Washington, from central bank and other officials interested in marketing methods and procedures. The methods employed in the United States, or in any other country with a highly active capital market, nat­urally cannot be adopted entirely by the underdeveloped countries; but nevertheless, these visitors have found that there are basic principles that apply in any case, and that there are procedures in the United States which, with the necessary adaptations, give some promise of success in their own countries.

[24 ]

What has been particularly encouraging to the Bank is the evidence found of the growing importance that is being attached to mobilizing local resources for investment. More and more government and business leaders appreciate that the greater the available supply of local savings, the better basis there will be for attracting outside capital as well. This whole question of mobilizing local capital is a complex one, but one whose importance, in the Bank's view, is second to none in the field of economic development. Wherever a member country re­quests help in its approaches to the problem, the Bank stands ready to be of assistance.

[25 ]

RESOLUTION ADOPTED BY THE BOARD OF GOVERNORS BETWEEN EIGHTH AND

NINTH ANNUAL MEE'I'INGS

Resolution No. 85

TERMS AND CONDITIONS ON WHICH ISRAEL SHALL BE ADMITTED TO MEMBERSHIP IN THE BANK

WHEREAS, the Government of Israel has applied for admission to membership in the In­ternational Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and

WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of Israel have made recommen­dations to the Board of Governors with regard to the application of that country for admis­sion to membership in the Bank;

Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby

RESOLVES:

THAT the terms and conditions upon which Israel shall be admitted to membership in the Bank shall be as follows:

1. Definitions: As used in this resolution:

(a) The term "Bank" means International Bank for Reconstruction and Devel­opment.

(b) The term "Articles" means the Articles of Agreement of the Bank.

(c) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944.

(d) The term "subscription" means the capital stock of the Bank subscribed to by a member.

(e) The term "member" means member of the Bank.

2. Subscription: By accepting membership in the Bank, Israel shall subscribe to 45 shares of the capital stock of the Bank at the par value of $100,000 per share.

3. Membership in the Fund: Before accepting membership in the Bank, Israel shall accept membership in and become a member of the International Monetary Fund.

4. Payments on Subscription: (a) Before accepting membership in the Bank, Israel shall pay to the Bank:

(i) Gold or United States dollars equal to 20/0 of its subscription; and

(ii) An amount in the currency of Israel which, at the appropriate prevailing exchange rate, shall be equal in value to 18 % of its subscription.

[26 ]

---_ .. _-----_._ .. _---------------

(b) Israel shall agree that, if it tenders any part of the payment called for in paragraph (a) (i) above in gold, the Bank shall have the right to reject any such gold which, in its opinion, may not be sold freely and uncondition­ally by the Bank to members requiring certification or other evidence as to the origin of gold purchased by them.

5. Representation and Information: Before accepting membership in the Bank, Is­rael shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraph 6 (a) and (b) of this resolution and Israel shall furnish to the Bank such information in respect of such action as the Bank may request.

6. Acceptance of Membership: After the Bank shall have informed the Government of the United States of America that Israel (i) has made the payments called for by paragraph 4 of this resolution; (ii) has made the representation called for by paragraph 5 of this resolution; and (iii) has furnished the information re­quested by the Bank pursuant to said paragraph 5, and after Israel shall have become a member of the International Monetary Fund, Israel shall become a member of the Bank, with a subscription as set forth in paragraph 2 of this resolution, as of the date when Israel shall have complied with the following requirements:

(a) Israel shall deposit with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obliga­tions under the Articles and this resolution;

(b) Israel shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

7. Limitation on Period for Acceptance of Membership:

Israel may accept membership in the Bank pursuant to this resolution until July 12, 1954; provided, however, that, if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which Israel may accept membership pursuant to this resolution, the Executive Directors may extend such period until such later date as they may determine.

Adopted January 11, 1954

[27 ]

RESOLUTIONS ADOPTED BY THE BOARD OF GOVERNORS AT NINTH ANNUAL MEETING

Resolution No. 86

FIFTH REGULAR ELECTION OF EXECUTIVE DIRECTORS

RESOLVED:

(a) THAT the proposed Rules for the Conduct of the Fifth Regular Election of Execu­tive Directors,! attached to the Report of the Executive Directors, are hereby adopted as the rules for the conduct of said election; and

(b) THAT the Sixth Regular Election of the Executive Directors shall take place at the Annual Meeting of the Board of Governors in 1956.

Resolution No. 86 was adopted by the Board of Governors on Septem­ber 24, 1954.

Resolution No. 87

FINANCIAL STATEMENTS AND BUDGET

RESOLVED:

THAT the Board of Governors consider the Financial Statements, Auditors' Report and Administrative Budget, included as exhibits "A" to "I" inclusive, of the Ninth Annual Re­port, as fulfilling the requirements of Article V, Section 13, of the Articles of Agreement and of Section 19 of the By-Laws.

Resolution No. 88

TERMS AND CONDITIONS ON WHICH THE REPUBLIC OF KOREA SHALL BE ADMITTED TO MEMBERSHIP IN THE BANK

WHEREAS, the Government of the Republic of Korea has applied for admission to mem­bership in the International Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and

WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of the Republic of Korea, have made recommendations to the Board of Governors with regard to the application of that country for admission to membership in the Bank;

Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby

RESOLVES:

THAT the terms and conditions upon which the Republic of Korea shall be admitted to membership in the Bank shall be as follows:

1 See page 33.

[28 ]

1. Definitions: As used in this resolution:

(a) The term "Bank" means International Bank for Reconstruction and De­velopment.

(b) The term "Articles" means the Articles of Agreement of the Bank.

(c) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944.

(d) The term "subscription" means the capital stock of the Bank subscribed to by a member.

(e) The term "member" means member of the Bank.

2. Subscription: By accepting membership in the Bank, the Republic of Korea shall subscribe to ]25 shares of the capital stock of the Bank at the par value of $100,000 per share.

3. Membership in the Fund: Before accepting membership in the Bank, the Republic of Korea shall accept membership in and become a member of the International Monetary Fund.

4. Payments on Subscription:

(a) Before accepting membership in the Bank, the Republic of Korea shall pay to the Bank:

(i) Gold or United States dollars equal to 2% of its subscription; and

(ii) An amount in the currency of the Republic of Korea, which, at the appropriate prevailing exchange rate, shall be equal in value to 18% of its subscription.

(b) The Republic of Korea shall agree that, if it tenders any part of the pay­ment called for in paragraph (a) (i) above in gold, the Bank shall have the right to reject any such gold which, in its opinion, may not be sold freely and unconditionally by the Bank to members requiring certification or other evidence as to the origin of gold purchased by them.

5. Representation and Information: Before accepting membership in the Bank, the Republic of Korea shall represent to the Bank that it has taken all action neces­sary to sign and deposit the instrument of acceptance and sign the Articles as contemplated by paragraph 6 (a) and (b) of this resolution and the Republic of Korea shall furnish to the Bank such information in respect of such action as the Bank may request.

6. Acceptance of Membership: After the Bank shall have informed the Government of the United States of America that the Republic of Korea (i) has made the payments called for by paragraph 4 of this resolution; (ii) has made the repre­sentation called for by paragraph 5 of this resolution; and (iii) has furnished the information requested by the Bank pursuant to said paragraph 5, and after the Republic of Korea shall have become a member of the International Monetary Fund, the Republic of Korea shall become a member of the Bank, with a sub­scription as set forth in paragraph 2 of this resolution, as of the date when the Republic of Korea shall have complied with the following requirements:

[29 ]

(a) The Republic of Korea shall deposit with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this resolution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution;

(b) The Republic of Korea shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

7. Limitation on Period for Acceptance of Membership: The Republic of Korea may accept membership in the Bank pursuant to this resolution until March 31, 1955; provided, however, that, if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which the Republic of Korea may accept membership pursuant to this resolution, the Executive Directors may extend such period until such later date as they may determine.

Resolution No. 89

TERMS AND CONDITIONS ON WHICH AFGHANISTAN SHALL BE ADMITTED TO MEMBERSHIP IN THE BANK

WHEREAS, the Government of Afghanistan has applied for admission to membership in the International Bank for Reconstruction and Development in accordance with Section 1 (b) of Article II of the Articles of Agreement of the Bank; and

WHEREAS, pursuant to Section 20 of the By-Laws of the Bank, the Executive Directors, after consultation with representatives of the Government of Afghanistan, have made recom­mendations to the Board of Governors with regard to the application of that country for ad­mission to membership in the Bank;

Now, THEREFORE, the Board of Governors, having considered the recommendations of the Executive Directors, hereby

RESOLVES:

THAT, the terms and conditions upon which Afghanistan shall be admitted to mem­bership in the Bank shall be as follows:

1. Definitions: As used in this resolution:

(a) The term "Bank" means International Bank for Reconstruction and Devel­opment.

(b) The term "Articles" means the Articles of Agreement of the Bank.

(c) The term "dollars" or "$" means United States dollars of the weight and fineness in effect on July 1, 1944.

(d) The term "subscription" means the capital stock of the Bank subscribed to by a member.

(e) The term "member" means member of the Bank.

2. Subscription: By accepting membership in the Bank, Afghanistan shall subscribe to 100 shares of the capital stock of the Bank at the par value of $100,000 per share.

[30 ]

3. Membership in the Fund: Before accepting membership in the Bank, Afghanis­tan shall accept membership in and become a member of the International Monetary Fund.

4. Payments on Subscription:

(a) Before accepting membership in the Bank, Afghanistan shall pay to the Bank:

(i) Gold or United States dollars equal to 2% of its subscription; and

(ii) An amount in the currency of Afghanistan, whieh, at the appropriate prevailing exchange rate, shall be equal in value to 18 % of its sub­scription.

(b) Afghanistan shall agree that, if it tenders any part of the payment called for in paragraph (a) (i) above in gold, the Bank shall have the right to re­ject any such gold which, in its opinion, may not be sold freely and uncon­ditionally by the Bank to members requiring certification or other evidence as to the origin of gold purchased by them.

5. Representation and Information: Before accepting membership in the Bank, Af­ghanistan shall represent to the Bank that it has taken all action necessary to sign and deposit the instrument of acceptance and sign the Articles as contem­plated by paragraph 6 (a) and (b) of this resolution and Afghanistan shall furnish to the Bank such information in respect of such action as the Bank may request.

6. Acceptance of Membership: After the Bank shall have informed the Government of the United States of America that Afghanistan (i) has made the payments called for by paragraph 4 of this resolution; (ii) has made the representation called for by paragraph 5 of this resolution; and (iii) has furnished the infor­mation requested by the Bank pursuant to said paragraph 5, and after Afghani­stan shall have become a member of the International Monetary Fund, Afghani­stan shall become a member of the Bank, with a subscription as set forth in paragraph 2 of this resolution, as of the date when Afghanistan shall have com­plied with the following requirements:

(a) Afghanistan shall deposit with the Government of the United States of America an instrument stating that it has accepted in accordance with its law the Articles and all the terms and conditions prescribed in this reso­lution, and that it has taken all steps necessary to enable it to carry out all its obligations under the Articles and this resolution;

(b) Afghanistan shall sign the original copy of the Articles held in the Archives of the Government of the United States of America.

7.. Limitation on Period for Acceptance of Membership: Afghanistan may accept membership in the Bank pursuant to this resolution until March 31, 1955; pro­vided, however, that, if extraordinary circumstances are deemed by the Executive Directors to warrant an extension of the period during which Afghanistan may accept membership pursuant to this resolution, the Executive Directors may ex­tend such period until such later date as they may determine.

Resolutions Nos. 87 to 89 were adopted by the Board of Governors on September 28, 1954.

[ 31 ]

Resolution No. 90

PLACE AND DATE OF TENTH ANNUAL MEETING

RESOLVED:

THAT the Chairman shall convene the Tenth Annual Meeting of the Board of Governors of the International Bank for Reconstruction and Development in Istanbul, Turkey, in Sep­tember, 1955, preferably in the latter half of the month.

Resolution No. 91

OFFICERS OF BOARD OF GOVERNORS FOR 1954-55

RESOLVED:

THAT the Governor for Egypt is hereby elected Chairman, and the Governors for China, France, India, the United Kingdom and the United States are hereby elected Vice-Chairmen of the Board of Governors of the International Bank for Reconstruction and Development, to hold their respective offices until the election of officers of the International Bank for Recon­struction and Development takes place at the close of the next annual meeting.

Resolution No. 92

COMPOSITION OF PROCEDURES COMMITTEE FOR 1954-55

RESOLVED:

THAT a Procedures Committee be hereby established, to be available after the termina­tion of this meeting, and until the election of officers of the International Bank for Reconstruction and Development takes place at the next annual meeting, for consultation at the discretion of the Chairman, normally by correspondence, and also if occasion requires by convening immediately before the annual meeting of the Board. The Procedures Committee shall consist of the Governors for the following members: China, Costa Rica, Egypt, France, Germany, India, Japan, Paraguay, South Africa, Turkey, the United Kingdom and the United States.

The Chairman, Vice-Chairman and Reporting Member shall be the Governors for Egypt, Costa Rica and Germany, respectively.

Resolutions Nos. 90 to 92 were adopted by the Board of Governors on September 29, 195"-.

[32 ]

... ,.-.... - -.. -.. ----.------------

• RULES FOR THE CONDUCT OF THE FIFTH REGULAR ELECTION OF EXECUTIVE

DIRECTORS

1. Definitions: Whenever used in these rules, unless the context shall otherwise re­quire, the following terms shall have the respective meanings hereinafter set forth:

(a) The term "Articles" means the Articles of Agreement of the Bank.

(b) The term "Schedule B" means Schedule B of the Articles with the adjust­ments specified in these Rules.

(c) The term "Board" means the Board of Governors of the Bank.

(d) The term "Chairman" means the Chairman of the Board of Governors or a Vice Chairman who may at the time in question be presiding as Chairman of the Board.

(e) The term "Governor" includes the Alternate Governor or any temporary Alternate Governor, designated in accordance with Section 12 of the By­Laws, when acting for the Governor.

(f) The term "Secretary" means the Secretary of the Bank.

(g) The term "election" means the fifth regular election of Executive Directors.

(h) The term "meeting" means the meeting of the Board at which the election is held.

2. Date of Election: The election shaH be held during the Ninth Annual Meeting of the Board at a time to be set forth in the schedule of the meeting as approved by the Board.

3. Schedule B: Subject to the adjustments hereinafter set forth the provisions of Schedule B shall apply to the conduct of the election.

4. Number of Executive Directors to be Elected Under Article V, Section .!db): At such election, eleven Executive Directors shall be elected under Article V, Section 4 (b) .

5. In view of the number of Executive Directors to be elected under Article V, Sec­tion 4 (b),

(a) The percentage of the eligible votes required for election as specified in paragraphs 2 and 5 of Schedule B shall be nine percent.

(b) The maximum percentage of eligible votes for anyone nominee as specified in paragraphs 3, 4 and 5 of Schedule B shall be twelve percent.

6. Nominations:

(a) A person shall be eligible f or election as Executive Director when nomi­nated by one or more Gover nors.

[33 ]

(b) Each nomination shall be made on a Nomination Form to be obtained from the Secretary and signed by the Governor or Governors making the nomi­nations.

(c) A Governor shall nominate only one person.

(d) On the day preceding the session at which the election is to take place, the Chairman shall, preferably at a session of the Board, announce the nomi­nations received, ask for any further nominations, and close the nomina­tions. The Secretary shall post a list of the persons nominated.

7. Tally Sheets: The Secretary shall post at the meeting and distribute to each Governor and Alternate Governor prior to the election a Tally Sheet sub­stantially in the form of Annex A l attached hereto and a list of the persons nominated.

8. Form of Ballut: The Secretary shall have available a sufficient number of ballot forms substantially in the form of Annex Bl attached hereto.

9. Supervision of the Election: The Chairman shall supervise the election and shall appoint such tellers and other assistants as he deems necessary.

10. Distribution of Ballots: One ballot form shall be furnished to each Governor eligible to vote immediately before a ballot is taken. On any particular ballot only ballot forms distributed for that ballot shall be counted.

11. Balloting-General: Each ballot shall be taken as follows:

(a) The roll of members whose Governors are eligible to vote shall be called in alphabetical order.

(b) Immediately after a member's name is called, the Governor for such mem­ber shall deposit his signed ballot in the ballot box.

(c) When the roll call shall have been completed and the ballots cast, the Chairman shall cause the ballots to be counted and shall cause to be an­nounced (i) the names of the members whose Governors voted for each nominee and the total number of votes received by such nominee, (ii) the name of each person elected, and in case the votes of any members counted toward, but were not cast for, his election, the names of such members, and (iii) the names of the members whose Governors are eligible to vote on the next ballot, if any.

(d) In the event that the tellers shall be of the opinion that any particular ballot is not properly executed, they shall, if possible, afford the Governor casting such ballot an opportunity to correct it before tallying the results; and such ballot, if so corrected, shall be deemed to be a valid ballot.

12. Recess: After any ballot, J~he Chairman may recess the meeting for such period as he may deem necessary, if in his opinion such action will facilitate the election.

13. Balloting-Second and Following Ballots:

(a) If as a result of any ballot and the preceding ballots (if any) the number of Executive Directors to be elected in accordance with paragraph 4 above

1 Not included herein.

[34 ]

shall not have been elected, a succeeding ballot shall be taken. The Governors eligible to vote on such succeeding ballot shall be only (i) those Governors who voted on the preceding ballot for any nominee not elected, and (ii) those Governors whose votes for a nominee elected on the preceding ballot are deemed under paragraph 4 of Schedule B to have raised the votes cast for such nominee above the maximum percentage of the eligible votes as specified in paragraph 5 (b) above.

(b) The votes of a Governor shall not be deemed under paragraph 4 of Schedule B to have raised the total votes for a nominee over the maximum percentage of the eligible votes as specified in paragraph 5 (b) above if without the votes of such Governor such total would be more than the minimum per­centage of the eligible votes but not more than the maximum percentage of the eligible votes.

(c) If on any ballot two or more Governors having an equal number of votes shall have voted for the same nominee and the votes of one or more, but not all, of such Governors could be deemed under paragraph 4 of Schedule B to have raised the total votes received by such nominee above the maximum per­centage of the eligible votes, as specified in paragraph 5 (b) above, the Chair­man shall determine by lot the Governor or Governors, as the case may be, who shall be eligible to vote on the next ballot.

14. Elimination of Nominees:

(a) If two or more nominees shall receive the lowest number of votes within the meaning of paragraph 3 of Schedule B, no nominee shall be dropped from the next succeeding ballot, but if the same situation shall continue on such succeeding ballot, the Chairman shall eliminate by lot one of such nominees from the next succeeding ballot.

(b) When on any ballot the number of nominees shall not exceed the number of ExecutivE' Directors remaining to be elected, each nominee shall be deemed to be elected by the number of votes received by him on such ballot; pro­vided, however, that if on such ballot the votes of any Governor shall be deemed under paragraph 4 of Schedule B to have raised the votes cast for any nominee above the maximum percentage of the eligible votes, as speci­fied in paragraph 5 (b) above, no nominee shall be deemed to have been elected who shall not have received on such ballot the required percentage of votes under these rules and a succeeding ballot shall be held on which all nominees not elected on the preceding ballot shall be eligible.

15. Abstention from Voting: If a Governor shall abstain from voting on any ballot, he shall be ineligible to vote on any subsequent ballot; and his votes shall not be counted, within the meaning of Section 4 (g) of Article V, as counting toward the election of any Executive Director; provided, however, that if such absten­tion shall have first occurred on the last of several ballots, the votes of such Governor shall be deemed to have been cast for the election of the Execu­tive Director elected on such ballot by the least number of votes. If at the time any ballot is taken a member shall not be represented by a Governor at the meet­ing or session at which the ballot is taken, the member, and its Governor, if any, shall be deemed for the purpose of this paragraph to have abstained from voting on that ballot.

[35 ]

16. Announcement of Results of Election: After the last ballot of the election, the Chairman shall cause to be distributed to each Governor a ~tatement setting forth the results of the election.

17. Effective Date of Election of Executive Directors: The effective date of the elec­tion shall be November 1, 1954. Incumbent elected Executive Directors shall serve through the day preceding such date.

18. General: Any question arising in connection with the conduct of the election shall be resolved by the tellers, subject to appeal, at the request of any Gover­nor, to the Chairman and from him to the Board. Whenever possible any such question shall be put in general terms without identifying the members or Governors concerned.

The Rules for the Conduct of the Fifth Regula.r Election were ap­proved by Resolution No. 86, page 28.

r 36]

-

-

EXECUTIVE DIRECTORS ELECTED AT FIFTH REGULAR ELECTION

1. LUIS MACHADO (Cuba), elected by votes of: Costa Rica_________________________________________________________ 270 Cuba _____________________________________________________________________ 600 Dominican RepubIic_______________ __________________________ 270 EI Salvador ________________________________________________________ 260 G ua tern ala ______________________________________________________ _____ 270 H 0 n d uras ________________________ ____________ __________________ ________ 260 Mexico __________________________________________________________________ 900 Nicaragua ______________________________________________________ 258 P anama ________________________________________________________________ 252 P eru ____________________________________________________________ __________ 425 Uruguay ________________________ _________ _____________________________ 355 Venezuela __________________________________________________________ 355

4,475

2. THOMAS BASYN (Belgium), elected by votes of: A us tria _______________________________________________________ ________ 750 B elgi u m ______________________________________________________________ 2,500 Luxembourg ________________________________________________ _ _______ 350 Tur key __________________________________________________________ 680

4,280

3. MOHAMMAD SHOAIB (Pakistan), elected by votes of: Egypt _______________________________________________________ ________ 783 Ethiopia ______________________________________________________________ 280 I r an _____________________________ .. ________ __________________ ______________ 586 Iraq _____________________________________________ ________________________ 310 Jordan _________________________________________________________________ 280 Le ban on __________________________________ _____________________________ 295 P aki stan _____________________________________________________________ 1,250 S yria ______________________________________________________ ______________ 315

4,099

4. JORGE MEJIA-PALACIO (Colombia), elected by votes of:

B 0 Ii vi a __________________________________________________________________ 320 Brazil ____________________________________________________________________ 1,300 Chi I e ----________________________________________________________ __ ______ 600 Colomb i a _____________________________________ _________________________ 600 Ec uad 0 r _____________________________________________________________ 282 H ai ti _____________________________________ _____________________________ 270 Paraguay _____________________________________________ _____________ 264 P hili p pines ________________________________________________ _______ 400

4,036

[37 ]

E X E CUT I VE D IRE C TOR S E L E C TED A T F 1FT H REG U L ARE L E C T ION (Continued)

5. D. CRENA DE IONGH (Netherlands), elected by votes of:

Israel _____________________________________________________________________ 295 Netherlands __________________________________________ ______________ 3,000 Yugoslavia __________________________ ______________________________ 650

3,945

6. TAKEO YUMOTO (Japan), elected by votes of: Burma ____________________________________________________ _________ 400 Ceylon _________________________________________________________ ________ 400 Japan ________________________________________________________________ 2,750 Thailan d _______________________________________________________ _______ 375

3,925

7. SOETIKNO SLAMET (Indonesia), elected by votes of: Greece ____________________________ _____ ___________________________ 500 Indo n esi a __________________________________________________________ 1,350 Italy __________________________________________________________ _______ 2,050

3,900

8. JON ARNASON (Iceland), elected by votes of: Denmark ____________________________________________________ _______ 930 Finland ______________________________________________________________ 630 Iceland ______________________________________________________________ 260 N orway ______________________________________________________ ._________ 750 S wed en _____________________________________________________________ 1,250

3,820

9. OTTO DONNER (Germany), elected by votes of: Germany ________________________________________________________________ 3,550

10. L. H. E. BURY (Australia), elected by votes of: A ustr alia ___________________________________________________ __________ 2,250 Union of South Africa_____________________________________ 1,250

3,500

11. LOUIS RASMINSKY (Canada), elected by votes of:

Canada ____________________________________ . ----------------------------- 3,500

Total Votes Cast _______________________________________ _ 43,030

[38 ]

•

•

Prospects for Private International Investment

SUMMARY STATEMENTS AT PANEL DISCUSSION

NINTH ANNUAL MEETING

September 28, 195-'+

J. VAN DE KIEFT

Chairman of the Board of Governors, Minister of Finance of the Netherlands

In the course of the meetings, encouraging references have been made to the general improvement that has taken place in the world economic situation. It is reasonable to expect that one of the consequences of this improvement will be an increased ca­pacity to export capital on the part of those member countries of the Bank who have

been traditionally capital exporters, and simultaneously an increased capacity on the part of the capital-deficient countries to receive and service new foreign investments.

What contribution is private foreign in­vestment likely to make to the capital needs of the underdeveloped world? That is the theme of the discussion.

EUGENE R. BLACK

President of the International Bank for Reconstruction and Development

The subject is of vital interest and con­cern not only to the World Bank as an institution but to every member country of the Bank and to the financial community at large.

The Chairman of the discussion and the first speaker will be Mr. George Humphrey, the Secretary of the United States Treasury and the United States Governor of the Bank. Mr. Humphrey for almost two years has held the purse strings of the Government of the Bank's largest stockholder.

He is no stranger in the field of interna­tional investment, for before taking over his portfolio at the Treasury he was associated with a large corporation in this country with very important investment interests abroad.

Mr. Butler is the latest of a long line of distinguished Britons to fill the venerable office of Chancellor of the Exchequer of the

[39 ]

United Kingdom. The United Kingdom at long last has been able to emerge from the grim austerity of the war and postwar years, and better times at home should enable the United Kingdom to maintain and expand her role as a provider for the capital­hungry nations of the world.

Chintaman Deshmukh is the Minister of Finance of India, and his very able manage­ment of India's finances during the years has earned the admiration of all. India has embarked upon a comprehensive plan to de­velop her resources and to raise the standard of living of the millions of her people. The cost will be great by any standard of com­parison, and for part of that cost she looks to an inflow of capital from abroad.

The final speaker is Mr. Eugenio Gudin, the newly appointed Minister of Finance of Brazil, another of the large and populous countries in another quarter of the globe,

faced also with great development needs and great development problems. Mr. Gudin is by profession an economist with a reputa­tion that has traveled far beyond the bound­aries of his own country. It is hoped that

in his competent hands the present diffi­culties that confront Brazil in the financial and economic fiel~s may be surmounted and that she will be able to move forward along the road to better things.

GEORGE M. HUMPHREY

Secretary of the Treasury of the United States

I have been asked to speak to you about some of the problems which face the pri­vate investor in a relatively young capital­exporting country. This does not mean I am unaware that there are two sides to this question, but merely that I am sure my colleagues from India and Brazil can present the picture as it appears to the capital­importing countries much better than I. They will be followed by the Chancellor of the Exchequer, whose broad perspective is based on the United Kingdom's long experience in making investments in so many places in the world.

Before discussing the obstacles which con­front the investor, I should like to say a few words about the improvements we have been witnessing abroad, and the very substantial accomplishments private investment is making despite the difficulties which still exist in some areas.

As has been said before at this confer­ence, confidence has been increasing. Cur­rencies have grown stronger as reserves have increased. There has been progress in re­moving quantitative restrictions on trade. Payments in many of the world's currencies are becoming freer as governments relax the grip of their exchange controls. These are all marks of an improvement in the financial position of many countries of the free world.

These changes have been reflected in a profound shift in our own balance of pay­ments. During the years 1946 through 1948 the transactions of the rest of the world with the United States resulted in our col­lecting four and one-half billion dollars in gold and in dollar balances and investments

----------,-',-,------------

[40 ]

from foreigners; that is, they paid us this amount to settle their accounts. In 1949, we were approximately in balance. But in the past four years, from 1950 through 1953, the reversal was pronounced, and our trans­actions with the rest of the world added about $7.7 billion to foreigners' assets in gold and dollars. Thus, for the postwar period as a whole, we have not drawn re­serves away from the rest of the world but, instead, have contributed to them.

This has been the end result of our trade policy, our customs reforms, our aid policy, our military expenditures, and our private and public investments abroad. In the current year the same trend is continuing, and at present rates another billion and one­half dollars will be available for building up foreign assets in 1954.

Durability in the balance of payments in a world subject to events changing as rapidly as those of our generation is not an easy thing to assure. But the record of the past four years is favorable.

In many countries, however, there is scarcity of investment capital and a pressing demand for funds for development.

All of us in the free world must be ever mindful of the extremely low standards of living which exist in many parts of the globe. In some countries, very low stand­ards of living exist where natural resources are bountiful. In others, rapidly growing populations are pressing hard 'on existing resources, but even in these cases the ab­sence of modern techniques of cultivation and tools of production, low standards of education, and poor conditions of health, present a challenge and offer an opportunity

for improving the lot of many millions of mankind. We must keep these problems to the forefront and cooperate in every practi­cal way to bring modern science, tools and technology to bear upon them. But private investment is not made for philanthropic reasons. It is made for profit that is freely available to the investor on principal that is safe.

Chairman van de Kieft in his opening address called attention to the complicated economic problem of differences in wealth and savings among countries, and the flow of private capital which is needed to help allay these differences. He noted that there are "new economic and political factors" in the postwar period, which in some cases "have tended rather to slow down than to increase the flow of private capital to the regions that are most in need of develop­ment."

What he has said is quite true. National­istic trends resulting in laws that dis­criminate against investors from other lands and restrictions jeopardizing either principal or the receipt of income slow down investment from outside. Vacillating poli­cies of governments can be warnings to prudent investors to look elsewhere.

Nevertheless, in many places private in­vestment has been making a substantial attack on the problem of promoting develop­ment.

At the end of 1953, our private investors had approximately 23.7 billion dollars in­vested in foreign lands, on which we have re­cently been averaging earnings of approxi­mately 1.5 billion dollars a year, much of which came to us in the form of needed goods imported through foreign subsidiaries and branches of United States corporations.

At the same time, during the past six years, our private investors were providing to other countries about $900 million a year in newly exported private funds, net of repatriation of capital. In addition to these exports of new dollars, about $600 million a year in earnings by foreign subsidiaries of U.S. corporations abroad were re-invested directly without being brought home and

thus do not appear in either of the two figures I have just cited. In all, new capital provided by private sources from this coun­try has reached at least one and one-half billion dollars a year. This total is about three times the rate of public lending by Government agencies during the same period, net of amortization and repayments of principal on U.S. Government loans.

A very substantial proportion of our pri­vate investment has been made in Canada, where conditions have been particularly at­tractive. Nevertheless, we estimate that private investors in the United States have been placing as much as $900 million a year in the rest of the world during the past six years, including the re-invested earnings al­ready mentioned. Even if we make a rough estimate and take out all investments in Canada and all investments anywhere in petroleum enterprises, we would have left about $600 million a year which has financed a wide variety of other enterprises outside of Canada. These amounts represent a very substantial supplement to local savings.

Some concern has been expressed that the rate of new private investment ap­peared to slacken rather sharply in 1953. Actually, this appearance was accounted for largely by security transactions and a reduction in commercial credit; direct in­vestments by U.S. corporations continued at about the rate of previous years. I am happy to report that during the first half of 1954 our private investors placed $644 million in new capital abroad, even without allowing for re-invested earnings. At an annual rate this is a larger outflow than in the peak post-war year of 1950.

[41 ]

What about the prospects for continuance of this flow or its increase? The prime factor which will determine this is the establishment of confidence in the country seeking investments among investors abroad.

Ordinarily it takes time to build confi­dence. As with individuals, it is best estab­lished by a definite course of good conduct over a period of years. The old saying that "actions speak louder than words" was

never more apt. Moreover, as frequently pointed out, the progress of years in estab­lishing confidence can be shaken overnight. But long-continued good behavior is not al­ways required. Governments change and, even more important, the thinking of the great mass of the people of a country can also change either for better or for worse. It is the real spirit of the people that is most important. They either resent the foreigner and his operation or welcome him as a well­recognized means of more rapidly im­proving their own lives, and so express themselves by their conduct and through their governments. That is the real flag of invitation or of warning. Moreover, foreign capital is not so different from capi­tal at home. It is attracted to countries where conditions are also favorable to the local investor. No country can reasonably hope to attract foreign investors if its own savings are seeking shelter abroad. Infla­tion or unfair treatment from popular re­sistance affects all investors whatever their nationality.

It is hardly necessary to discuss in detail the familiar types of deterrents which ad­versely influence the investor today. It is probably enough to mention that some of the principal ones are threats or a history of confiscation or discrimination.

There are also the risks associated with exchange restrictions and multiple rate sys­tems which are both complex and subject to considerable instability. An abrupt and sharp depreciation can seriously impair the fruits of past efforts for the foreign in­vestor. Restrictions on transfer present a constant fear to the investor that he will find himself queueing up at the end of the line to receive permission to transfer his income into the currency he needs. In many of these areas the members of the Interna­tional Monetary Fund are cooperating to provide a better basis for the flow of inter­national capital.

Sound large-scale private investment abroad can only result from assurance of the security and the right of ready repatriation of principal and an opportunity for greater profit than at home.

The private investor has a choice between his own market and opportunities in foreign countries. Where, as here, there are good possibilities open to him in his own country every day, he will need some additional in­ducement to undertake the extra risks of going to foreign lands to cope with the differences in language, law and customs. He will want to be doubly sure of his busi­ness associates abroad. And he will be slow to go if he feels that his activities will be approached in a general atmosphere of criti­cism rather than one of warm welcome.

Of our own substantial direct private in­vestments abroad, more than $6 billion is connected with petroleum and mining enter­prises. These funds go where the resources are to be found, and when they are needed, and when the pulling power is great enough to overcome the many obstacles, both natural and man-made.

In the area of manufacturing or mer­chandising, such considerations are much less compelling. The economic inducements must persuade the foreign investor that his chance for profit is greater.

On the other hand, there may well be more resistance from a feeling of nationalistic possession in the case of the development of natural resources than when only manu­facturing or merchandising is involved. And the large size of the investment required and the length of time in which it can nor­mally be returned is far greater for natural resources than in manufacturing or trading lines so that greater security of principal and return of profit must be assured. But there is no way in which a country can develop faster for the rapid improvement of the lives of its own citizens than by the use of foreign capital in turning its natural re­sources otherwise lying dormant into jobs and homes and better living for the numbers of its people that will be so employed.

[42 ]

The high yields on common stocks in the United States have been a powerful attrac­tion for the private investor. During the past year, the growth in confidence and the supply of capital for investment here have brought somewhat lower yields. This may

provide some stimulus to interest in invest­ment abroad where the assurance of security and the lure of higher profits is sufficiently attractive. Special tax consideration and other methods of stimulation can also con­tribute to increased interest in foreign fields.

What are the policies which attract pri­vate capital from abroad? I think they can best be summed up in a simple way: se­curity and the right of ready repatriation of principal and attractive return.

It is not unlike the conditions which in­duce two individuals to embark on a com­mon venture. There must be mutual con­fidence. The private foreign investor must be really wanted and welcome not just by the government at the time, but by the people as well and for a long time, because they are truly persuaded and believe that by the use of his money they can better themselves faster and further than they can alone. They must be willing and glad to pay a reasonable price for the risk involved and show by a history of fair dealing that after the risk has been once undertaken and when success for both has been won, that they will then not go back on their bargain and, through direct action or ruse or sharp practice of any kind, seek to enlarge their

fair share of the original basis on which the joint enterprise was begun.

If governments and laws are responsive to such a conviction of the people, their country will have little trouble in obtaining private foreign investment for any venture within their borders that can properly earn an attractive return.

I want to emphasize that we have been discussing private investment abroad as dis­tinguished from Government programs. While many of the criteria for investment are equally applicable to both there may well be inducements in the latter case which would go beyond those to be properly con­sidered in the former.

For our part-that is, in the United States-surely our greatest contribution will be to maintain a high level of economic activity and income in the United States, and thus to provide a reservoir of venture capital. If we can proceed with mutual trust and confidence, we will, through the channel of private investment as well as the efforts of the International Bank, suc­ceed in converting a revolution of expectancy into first a practical business-like approach and then into a real revolution of achieve­ment.

CHINTAMAN DESHMUKH

Minister of Finance of India

Very appropriately we are discussing the prospects for private international invest­ment at this juncture. We seem to be passing from one economic era to another, with economic stability established or within sight once again, and with an in­creased likelihood of international capital seeking investment on one hand and greater hunger for such capital on the other in countries bent on developing their backward economies.

There are also signs that in the new milieus that are arising there will be a shift

[43 ]

of emphasis from government programs to private international investment. Such a shift, in our view, is to be welcomed, as such private investment implies in the re­ceiving countries more disciplined economic management and between the parties con­cerned a free and objective assessment of advantages and risks.

The phrase "private international invest­ment" is all right as a shorthand descrip­tion of the phenomenon, but concretely the problem is one of providing a meeting ground for particular lenders and particu-

lar borrowers. There is not, in other words, a given over-all supply of savings or investment funds to be apportioned to vari­ous claimants. The problem is one of matching the availabilities, which again are not fixed or determinate, in a set of coun­tries with the requirements of other coun­tries and in terms of particular investment propositions.

The flow of investment capital from sur­plus countries to deficit countries does not follow, we recognize, what might be called the "laws of economic gravitation." It is not as if such capital is distributed or tends to get distributed as between different coun­tries or as between different users so as to equate the returns at the margin. Some capital flows from metropolitan to colonial countries, and instances are not wanting of metropolitan countries having made a part of their scarce resources available to colonies or dependencies even by borrow­ing abroad or by stinting on domestic in­vestment.

Then some countries, though independent, are able to attract investment from abroad because of geographical proximity or be­cause these investments are in some way complementary to domestic investments in the capital-exporting countries.

There is, furthermore, very little today of portfolio investments by the relatively small investor in one country in the scripts of another country.

Then, on the side of capital-receiving countries which have some sort of program of development, what they need is capital for particular projects or in particular fields, and capital which contributes in some way to the furtherance of their plans or programs either in the public or in the private sector.

I am not suggesting that the problem of over-all availability and aggregate needs is not important. My point is that we shall not get far in the matter unless we visualize the problem in its concrete setting, keeping in view particular needs and assessing the prospects of availability in terms of these needs.

[44 ]

What we call international private in­vestment today is the aggregate of such indi­vidual transactions. These individual transactions presuppose a certain economic and institutional framework, but in many cases each transaction presents special problems.

Historically, we often regret the disap­pearance of the alleged palmy days of the nineteenth century where surplus capital flowed freely over national boundaries, in some cases along with surplus population, and contributed to the development of new continents and to the opening up of old ones for international commerce. Undoubtedly these capital exports were historically im­portant. Looking back, one cannot but re­cord with appreciation the fact that much of this investment was portfolio capital, that a great deal of it went into basic developments like railways and public utili­ties, and that the rate of return was on an average a little above five per cent.

Now, conditions today are different. The political ties which in the old days promoted such capital movements between advanced and underdeveloped countries have grown weaker or have been sundered. Some of the old creditor countries have no longer much of a surplus to speak of. The needs of large parts of the world which have, often with the advent of political freedom, be­come development-conscious have on the other hand increased rapidly and are bound to increase progressively if any significant improvement is to be achieved in the piti­fully low standards of living of their teem­ing millions.

It is obvious that the task of building up the new channels required to facilitate and promote the flow of investment capital from wherever it is available to wherever it is needed has hardly begun. Some of the figures have been quoted by the Governor for the United States.

I am convinced that what we are facing now is a new situation and that in finding an answer to it we ought to bear in mind the need to adapt the terms and conditions of investment to the political and psychological

situation in the underdeveloped countries.

I shall not venture an estimate of require­ments. Several estimates of questionable reliability have been made. And, in any case, what is more important in the present context is availabilities rather than require­ments.

You have just heard the figures quoted in regard to capital export from the United States. N ow, the bulk of it, I think it is correct to say, is direct investment, and of this roughly 38 per cent goes to Latin America, about 28 per cent to Canada, some 17 per cent to Western Europe and its de­pendencies, and the rest is distributed widely over a number of countries in Asia and Africa.

As is also pointed out, petroleum has at­tracted a very large per cent of invest­ment-about 45, I think-and manufactur­ing about 32. Public utilities, which used to figure so largely in the nineteenth century investments abroad, have ceased to attract such capital.

Now, as a case study, I should like to illustrate the character of the problem with reference to our own experience in India. First a word about our policy regarding foreign investment. I will summarize it in the following propositions:

Foreign capital is welcome on terms mu­tually advantageous to the investor and the country. As far as possible, the majority interests in ownership and effective con­trol should be in Indian hands. This is, however, not a hard and fast rule, and ex­ceptions are made where necessary in the national interest.

Then, there should be adequate provision for the training of Indian personnel for taking over technical and administrative posts in the enterprise.

Foreign enterprises will, after admission, have equality of treatment with Indian en­terprises. Fair and equitable compensation will be paid if the Government acquires any foreign enterprises. Foreign enterprises are assured of reasonable facilities for remitting

[45 ]

profits and repatriation of capital and also for any compensation paid on acquisition.

Now, these are the principles which are the basis of the Government of India's for­eign investment policy, although the con­ception of the manner in which foreign investment should be regulated has under­gone some minor modifications from time to time and clarifications have been made.

Now, there is reference to foreign invest­ment being welcome on mutual terms. In each case foreign investment should be ex­amined on the merits and permitted only if it is considered to be in the national in­terest. This scrutiny is conducted by a committee of the section of the Ministries of Finance, that is to say, the Department of Economics, Commerce and Industry Ministries, and weight is given to the fol­lowing factors:

That there is a genuine program of manu­facture; that foreign investment is in fields where indigenous capital is not adequate or technical know-how is not available in India; that the investment would lead to a saving of foreign exchange by reducing imports or a direct gain in foreign exchange through increased sales abroad, and the proj ect would be needed to increase productivity.

Generally speaking, investment of foreign capital is not permitted in trading and dis­tributing concerns except in such cases where technical know-how is an essential aspect of the trading activities.

Now, it is not the policy of our govern­ment to encourage investment where the majority investment control is in foreign hands, but I hasten to point out that that is not a hard and fast rule, not a statutory rule, and exceptions have made different results in several cases where the proj ect was considered to be in the national in­terest, despite this shortcoming, as in the case of oil refineries. Thus, India's interest is to be the touchstone on which each proj­ect involving foreign investment is to be tested.

The extent of India's interest in owner­ship and control of an undertaking by

foreign investment would remain an im­portant consideration in the scrutiny of a foreign investment project, but it will not be regarded as the most important consider­ation. The policy of the Government of India is flexible in this regard. Where na­tional interests are likely to be furthered by making a concession in the matter of major­ity Indian control, this condition would not be insisted upon.

N ow as regards the present position, we are often asked if there are any predeter­mined spheres for foreign investment. The answer is "No," because it has not proved feasible to define such spheres, and a pro­posal involving foreign investment is scru­tinized with reference to its general useful­ness to the national economy. Preference is given to foreign investment in specialized industries requiring a high degree of tech­nical skill and know-how which have not al­ready been developed in the country, and industries for which domestic capital shows definite shyness over a period of years. This does not, however, mean that foreign invest­ment is not permitted in fields where Indian capital has made some headway on its own. If internal capacity is insufficient because of considerations of quality and technique of production, the question of allowing foreign capital to enter the field of production in which Indian capital also is functioning is considered on the merits.

Now as regards the actual results, the net total investment of external capital in India since 1948 to the end of 1953 has been of the order of a little over a hundred million dollars in the aggregate, about $18 million per annum. A large part of this total is accounted for by the two new oil refineries, and there has been, in addition, an increase in other investments in existing concerns. These figures are net of the repatriation of capital in recent years, which means that the gross investment from abroad was much larger. It was approximately $280 million, of which nearly two thirds represented invest­ment of branches of foreign concerns al­ready established in India, an indication of the confidence which established foreign in-

[46 ]

vestors have in India, and which confidence has been referred to by the Chairman. This is not an unsatisfactory picture; but judged in the light of India's requirements the net contribution that private capital from abroad has so far made to India's develop­mental needs is still small. In spite of occa­sional manifestations to the contrary, which are often capable of reasonable explanation, India, I dare say, is a good risk, and condi­tions are favorable in our opinion for invest­ment from abroad. India would appear to satisfy all the conditions which have been indicated in the opening remarks, and which international chambers of commerce have also from time to time referred to as con­tributing a favorable climate: equality of treatment in domestic and foreign invest­ments, non-discriminatory legislation, no restrictions on import of foreign equipment for investment purposes, and so on and so forth.

Now, other factors also seem favorable. I quote them, as I said, because they are representative of some internal stability and maintenance of law and order and of fairly efficient administrative machinery, although I admit that in the beginning this process of capital control involved a certain amount of administrative delay which is gradually being eliminated. We have an independent judiciary, safeguarding of contractual rights of individuals and companies, reasonably smooth labor-management relations, and finally a potentially large domestic market.

So I do not find that there are any ob­stacles or impediments to investment from abroad in India of India's making which one could put one's finger on and ask for the removal of. I believe foreign investment will come in as business contacts grow and there is better appreciation of mutual needs and requirements. It is in these directions, I think, that special effort is called for.

There has been frequent reference to the inconvenience of screening of investments by governmental machinery. The object is to allocate limited physical resources so as to derive the maximum benefit for the national economy.

I must also point out that as far as I can make out criticism of the screening proce­dure is not general. A number of inter­national bodies have, as a matter of fact, accepted the validity of the need of a screen­ing process. In a sense, screening should give some assurance to the investor that his project will succeed in an environment dif­ferent from that to which he is accustomed, and generally I can say that the criteria used in India are objective and the approach is flexible. There are exchange, import, and export controls; but these are a feature of what we call the transitional stage and are due to the need of conserving foreign ex­change resources. Now, here, as in the case of political risks, the remedy is greater flow of foreign investment if the risks are to be lessened.

Convertibility of external maj or curren­cies will, of course, lead significantly to freer exchange, and this, as has been pointed out, frequently requires both in the creditor and the debtor countries more understanding. But, as I have pointed out, India has no re­striction on imports of capital in the form of foreign exchange risks. In some countries they have proved to be a serious inconven­ience, and I entirely agree that it is one of the basic conditions for attracting foreign investment that exchange soundness and ex­change stability be maintained.

Then there are some minor matters, minor not in their importance so much as in the sense that they are capable of solution, such as the lack of double taxation agreements between the countries. Now, this requires negotiation between the governments, and in this direction, some progress has already been made within India and some of the other countries concerned.

Some apprehensions have been expressed in regard to the alleged threat of nationali­zation and government interference. Now, in India the policy of nationalization affects only certain strategic industries, and it is not inflexible. For example, with regard to oil, although oil is included within these in­dustries, we have given assurances to the oil refineries that no attempt will be made to nationalize them for a period of 25 years,

[47 ]

and I have no doubt that similar assurances, if considered appropriate, could be given in the case of other important fields of private investment.

In any case, there are, in India, very large fields left entirely free to private enterprise.

N ow, as regards government interference, or what is called social control, the aim of the regulations is to safeguard the interests of, for instance, the depositors in the case of banks, the policyholders in the case of insur­ance companies, or the general public in the case of certain industries which are re­garded as important from the point of view of the community.

N ow, these instruments of social control are like hedges. To a good driver, they are hardly noticed, except in the distance, and they are only there to keep in order those whose antecedent record of conduct is not so good.

Now, in my opinion, the most important obstacle in the way of foreign investment is lack of facilities to establish contacts be­tween the lenders and borrowers and the absence of a machinery for informing in­vestors of investment opportunities.

Private investment has to be coaxed. and oftentimes that final, crucial determination to investigate a proposition is lacking, and it is this which has to be stimulated.

Now, one way in which all these difficulties can be met is by providing an institutional arrangement for which there is great need. We referred yesterday to the proposal for an International Finance Corporation, which could provide a meeting ground between in­vestors in capital-exporting and capital­importing countries.

This Corporation would also channel pri­vate investment which is not prepared to take the risks on its own.

Complementary to such a Corporation would be indigenous investment corpora­tions. And in this regard, I would like to refer to an experiment which is about to be established almost on the initiative, certainly under the guidance, of the World Bank, and with its active assistance. Leaders in this

case from India have combined or are likely to combine with prominent industrial inter­ests in the United States and in the United Kingdom, the last consisting of the Com­monwealth Development Corporation, to participate and make such an institution. Apart from the actual functions of this cor­poration in providing finance for industrial projects, the scheme itself is a very novel and potentially useful one, as it sets up a meeting ground for seasoned investors and

industrialists from three countries, capital­exporting, capital-importing and capital­experienced, for the establishment and widening of contacts and for the promotion of wider understanding and knowledge for carrying out continuous scrutinies of proj­ects and for furnishing guidance to pro­spective investors.

We feel that it is along these lines that the channels of private international invest­ment can be significantly widened.

EUGENIO GUDIN

Minister of Finance of Brazil

The subject of international capital and international investments has been so widely discussed, has been the object of so many reports, especially by the United Nations, that one is perhaps somewhat diffident in discussing it with the idea of performing something useful.

If there is any advantage in discussing it, it must be done with an entire impartiality. It is a subject that must be approached on the lines of the great French writer, Renan, who wrote "J'ecris pour ceux qui cherchent la verite"-"I write for those who are seek­ing for truth."

It must be done with complete impartial­ity, with no passion. Otherwise, it becomes useless.

First of all, let us see in what respects the underdeveloped countries are to blame.

I think there are three plagues that must be mentioned, one of which I will mention first, because I think it should be excluded. This is the supposed expropriation of foreign or private property without pay­ment. If the standards of conduct of a country are so low that there is a real danger that the property will be expro­priated without payment, that country should be excluded from the list to which international capital should flow, and that stops it.

Now, then we come to the two real plagues which I think are serious and should really be considered. The first is inflation. Natu­rally, as you all know, inflation means a serious disturbance and disequilibrium of the balance of payments.

[48 ]

If the foreign investment takes the form of foreign investment expressed in the cur­rency of the importing country-for in­stance, if it is American groups that make an investment in Brazilian cruzeiros-then of course the balance of payments trouble which finally results in a devaluation is di­rectly applicable to that investment.

N ow, even if the investment is not ex­pressed in the currency of the capital-im­porting country, the remittance of dividends gives rise to balance of payments difficul­ties, and makes the situation difficult and unattractive for the investment of foreign capital.

It is curious that even some capable econo­mists believe that progress in the under­developed countries can only be made under the pressure of inflation and disorder. Even in my country, where our flag has got its special feature-an inscription on it saying "Order and Progress" -there are a good many people who think that somehow prog­ress can only be made with a certain amount of disorder.

Inflation is a really very serious plague.

In my country some people call me a de­flationist. I have never been any such thing. Rather to the contrary. One of my great teachers in economics, Professor Denis Robertson, is in favor of what he called the "gentle rise in the price level." I would rather adopt that line than any deflationary line.

Inflation is incompatible with a regular flow of foreign capital because of balance of payments disturbances.

Underdeveloped countries must take the responsibility and must take care of this plague; otherwise they become unattractive to foreign capital.

The second point is of a political nature or psychological nature,-the second "plague" is nationalism. It is curious that while the nineteenth century was, as compared to the present century, a century of economic im­perialism, it is now in the twentieth century that one sees a development of nationalism perhaps stronger and more forceful than what happened in the nineteenth century. Whereas in this century one may say eco­nomic imperialism has practically disap­peared, nationalism in some places, in some countries, in some conditions, seems to have become worse than before.

We all have seen the differences between the Mexican Government, for instance, and the oil companies. We have seen the differ­ences between Great Britain and the Iranian Government over the question of oil. But none of us has heard of an American battle­ship going to Mexico or a British fleet going to Iran.

So the twentieth century as compared to the nineteenth century should not be of a nationalistic mind, since that is, of course, a serious plague for the investment of foreign capital.

For foreign capital to migrate from a de­veloped country into an underdeveloped country it must find a favorable climate and receptivity. Otherwise it has no business to go there. Therefore, after excluding the possibility of expropriation without pay­ment, underdeveloped countries should take very great care in getting rid of these two

plagues, one of which is inflation and the other is nationalism.

N ow let us look at the problem as it exists in the capital-exporting countries. I'm really impressed by the very small amount of flow of capital from the developed to the underdeveloped countries.

Let's take what happened in Great Britain. In the 1880's-1881-1883-in Great Britain, in portfolio alone you find in these days about 65 million pounds, about 330 million of U. S. dollars of a purchasing power which represents today about $1,300 million a year. That means Great Britain used to supply in portfolio alone around the 1880's about $1,300 million a year of capital exports. And at that time Great Britain was a country of only 30 million people. The United States had a population of about 50 million.

Now, what are the corresponding figures, which I take from the 1953 balance of pay­ments figures published by the Fund? The United States had an income from foreign investment of $2,154 million on direct in­vestment, and income from other types of investments, including government loans, of $468 million. Therefore, the total net in­come from investments was $2,622 million of income.

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Now, in the same period, how much did the United States invest? Abroad, in long­term investments-let's take direct invest­ment first-direct investment, including re­investment of profits, amounted to $1,413 million. And on securities account the balance is minus $64 million-in other words, it had $64 million less of portfolio invest­ment than the year before.

Now, official and banking long-term loans net amount to $117 million. If I remember well, the figure for actual disbursements of the World Bank is about $160 million.

So the total from the United States, ex­cluding the World Bank, I should say, is around about $1,500 million during 1953 as compared with $2,622 million of income. In other words, the net flow of transfers from countries to the United States was appre-

ciably more than the outflow from the United States to the rest of the world. And if you consider that the great part of this outflow is for investment in oil, you will see that the figures are really not encouraging.

If one compares this small amount of capital invested abroad with the size of the gifts that this very generous country has given, some $30 billion to $40 billion of gifts, including Marshall Plan and Mutual Security Plan, one is led to think somewhat that the United States has more ability to give than to lend.

Now, in analyzing the reason why, let us try to see why such features are taking place. I will divide it between what I shall call minor and major causes.

The minor causes, I should say, are rather technical but they are simple. First of all is the fact that the only kind of investment, foreign investment, which is supposed to be sound is one that must contribute to a balance of payments improvement. Well, inasmuch as a good many economists are here, I do not need to go into details to ex­plain that a foreign loan may be granted­foreign investment may take place-in an underdeveloped country which neither pro­duces an increase of exports nor a decrease in imports and still does not amount to a balance of payments disequilibrium-pro­vided there is no inflation. The beast is in­flation. The investment may be of a nature that produces an excellent amount of activ­ity. It can have excellent results for the country and still may not have a direct action on the balance of payments. That misconception I think should be put aside.

The second technical point which has rele­vance, which I would like just to mention, is the investment criterion which thinks that loans should only cover the foreign exchange requirements. That's in connection with Article IV of the World Bank charter. There seems to be there a lamentable con­fusion between the physical items of capital and capital for savings. The fact that of a certain scheme or a certain proj ect only 30 per cent is composed of goods which must be imported does not mean that the under-

developed country should be or is able to provide 70 per cent of the savings necessary, when the fact of "underdevelopment" itself means that the country does not have the savings at its disposal.

I think these two points are what I shall call the minor misconceptions.

Now going to the major causes, we must realize: That the leadership of the economic world has passed from Great Britain to the United States; that is, the leadership has passed from an extrovert country to an introvert country.

By "extrovert country" I mean a coun­try looking to the outside world. Great Britain was a country for which foreign trade meant 20 per cent, more or less, of national income, whereas the United States is a country in which foreign trade means 6 per cent, more or less, of the national in­come. The stake of Great Britain in the out­side world was much more than that of the United States.

[50 ]

The second point for us to realize-I am not criticizing; I am just stating facts-is that while Great Britain was not competitive with primary producing countries in any way, the United States, with its tremendous size and possibilities, both in industrial and in agricultural production, is competitive with several primary producing countries.

The third point, which I think is very im­portant, is that Great Britain had an ex­tremely comprehensive understanding of what I shall call the multiplier. The multi­plier I have in mind is not the foreign trade multiplier that you economists have in mind perhaps now; it is another multiplier. I have had a great deal to do with the British and dealt with them for some thirty years, and always found they have a very good understanding of this multiplier concept. It means that a loan granted to an under­developed country meant employment, meant increase of trade, meant development of markets, meant acceptance commissions, meant money market discounts, meant in­surance, meant freight, meant coal. These other activities represent the multiplier, i.e., advantages to be taken from the foreign in-

vestment in a good many ways outside the profit of the investment itself.

The United States, by the nature of its economy, is too busy with the development of its own country to take care and have a proper understanding of these secondary but most important concepts, which I have called the multiplier advantage of foreign investment.

As a final remark I would like to point out the important question of income tax. This has been referred to so many times, but really is a very important point. Take, for instance, capital that goes to Brazil. That means American equipment goes there, American know-how is exported to Brazil, and Brazil supplies labor, raw materials. and so forth. In the end, we have a Brazilian­American undertaking. If successful, i.e., if it produces a profit, the Brazilian Govern­ment comes and says, "Please give me my 10 per cent of those profits, which is my income tax." Now, the richer country, here repre­sented by my distinguished colleague, Mr. Humphrey, says, "Give me my share of this profit," which sometimes amounts to 30 per cent or more.

This is quite harmful to foreign capital, because, after all, if you don't give the American businessman some sort of induce­ment to go outside his country, why should he go? He has so many interesting possi­bilities right in his very country; he has the

understanding; he has the language; he understands the mentality of the people. In order to go to another country, there must be some sort of inducement for him to do so. The Rockefeller Report indicates seventeen countries which do not charge tax on income produced outside the countries. I dare hope that the United States will be an eighteenth one.

I would like to conclude by a final remark on the absolute meaning of the figures that we see-when I say "we", I am referring to the founding fathers of the 1944 Bretton Woods Agreement, such as Mr. Rasminsky of Canada, and others that I see here.

When the meaning of the 1944 figures is compared to their meanings today, it must be borne in mind that international trade has since then increased by some 40 per cern, and the purchasing power of the dollar has decreased by 40 per cent. Therefore, the figures that we had in mind both for the Fund and for the Bank should be reviewed.

In conclusion, I repeat, that under­developed countries should maintain the climate of receptivity for foreign capital and combat inflation and nationalism. The capital-exporting countries should sincerely consider that when the conditions of recep­tivity in the underdeveloped countries are satisfactory, the figures of migrating capital should be multiplied by a very large factor, as compared with what they are today.

R. A. BUTLER

Chancellor of the Exchequer of the United Kingdom

I speak to you following the very witty and distinguished speech which we have just listened to. I am a confirmed extrovert, and one whose country is likely to remain so. Our small island, the center as it is of the sterling area, cannot live and survive unless we look out on the "perilous seas and faery lands forlorn." We have a very consider­able record of foreign lending. You were bold enough to give some impression of our portfolio in the 1880's. My own figures con-

[ 51]

firm the extent and amount to which you referred.

We had built up to the beginning of the first World War foreign investment which at the outbreak of that war was worth about 4,000 million sterling. That would be in current values today, about three times that amount. This was, of course, mostly private investment. Government intervention in those days, those happy days, was on a very

small scale. But when we came to struggle alone for a period in the second World War, and then brought ourselves and our gallant partners to victory, we found that our posi­tion was changed overnight at the end of the Second World War from being the world's greatest creditor to being the world's most distinguished debtor.

In the course of that war, our external capital position deteriorated to the tune of 4,000 million sterling, (including an increase of nearly 2,900 million sterling in our ex­ternal liabilities)-which shows the nature of the struggle. And so in the early years after the war transfusions of capital were needed from abroad to help restore our United Kingdom economy, and I am glad to say that the picture I shall be able to give you today is one not only of an extrovert, but one whose blood transfusion has resulted in a condition in which we can start letting it out again.

The United Kingdom, therefore, has run the gamut of investment experience. We are now both a lender and a borrower, and we are therefore acutely aware of both sides of the investment problem.

I quoted in a previous speech of mine, or rather repudiated, an English classical quotation. On this occasion I should like to say that in my opinion Polonius in his advice was quite wrong when he said "Neither a borrower nor a lender be, for loan oft loseth both itself and friend, and borrowing dulls the edge of husbandry."

We find we get along pretty nicely as a borrower and a lender, and in the realm of husbandry, we are now accumulating our savings once more.

N ow, our experience covers every type of capital investment. London has always been a short-term banking and a long-term investment center.

I understand that this discussion is not concerned so much with capital movement of a short-term character, such as movements caused, for example, by changes in exchange or interest rates, or short-term credits, or banking accommodations. We are con­cerned, in simple English, with capital

[52 ]

which sticks, or credit which is long-term­that is, funds which connote resources which confer a durable benefit on the borrower and enable him to concentrate the more on in­creasing wealth, production and trade.

Before the First World War, in those happy days, and to a decreasing extent after it, capital was allowed to go where it wished. Conditions then were pretty different from what they are now. There was comparative freedom from exchange restrictions, and there weren't quite so many of the features to which my distinguished predecessor has referred in some countries concerned.

Governments sometimes have to interfere necessarily at present, in preventing a free flow of capital and the rewards of invest­ment. And we might ask ourselves, why do we devote a session now to this question, why is it the subject of continuing discussion at the UN and in the OEEC, and at the Bank's meetings?

What are the practical steps already taken by the Bank, and what is happening under the Colombo Plan; what is happening about the United States Government long-term loans and our own U.K. colonial and develop­ment welfare loans?

I think the reason why we are right in concentrating on this question today is that despite all that has been done by the Bank, despite all the discussion which takes place at these distinguished international gather­ings, I support Sir Chintaman Deshmukh in saying that we are failing to secure any­thing like the full benefits that international capital can provide to the world.

N ow, we must consider this overseas in­vestment not only from the aspect of profit, but because it is important socially and in human terms, it is important politically in the international field, and of course it is im­portant from the economic point of view.

Self-help from internal capital is, of course, a most healthy and attractive method of encouraging development within a par­ticular country. But if we were to impose upon our own citizens, particularly we Finance Ministers, who have a hard enough time already, the extra sacrifices that would

be necessary to finance all our own develop­ment, we would, by ignoring the possibility of importing foreign capital, be imposing unnecessary restrictions and hardships on our own people.

I think the flow of international capital is important politically, because in the present state of the world it is one of the great ties which can prevent the growing disparity of standards of living between one nation and another.

Those of us who listened to Mr. Black's opening address at this Annual Meeting will know that that was the theme, the theme of tying the nations together and of under­standing one another's problems.

Of course, the argument for the economic value of overseas investment is obvious, be­cause it brings up production and consump­tion in international trade.

I should have thought, therefore, that we are discussing something which is at the present moment of first-class importance in cementing international cooperation. And it is our job, as I see it, as finance ministers, gathered here today, not to forget the three aspects, the human and social, the political and the economic.

And that is the tie between those of us who are sitting here on this platform, be­tween what is sometimes described as the underdeveloped countries-although I often wish I were one myself-and those which are described, like that of my prosperous friend on my left, Mr. Humphrey, as the developed countries.

Now, we are not here today to consider governmental investment. There is obvi­ously a good deal to be said about that. It generally takes the form of loans on which a rigid service payment has to be made, a payment not variable with the for­tunes of the concern or with the country.

We are concerned with private invest­ment, which can be in equities, which is more flexible in every way. And private funds are those upon which I think we should rely more than any other.

The Bank is already doing excellent work in this field. Its dollar funds are derived mostly from market issues and from the

U.S. private investor. In fact, the Bank is the biggest single channel for the U.S. pri­vate investor abroad.

In addition to this, the Bank has probably been the main institution to give confidence to private investors. And haven't I heard enough since I have been in the United States of some of the fears and anxieties of the introverts on this matter. Let them therefore take the opportunity of consulta­tion with the Bank and realize what good they can, perhaps unwittingly, do.

I was recently in Pakistan, and while I was visiting that country, there came up for consideration this vast project of carrying natural gas from the Sui Fields through pipes-which we shall naturally hope to be British-to the centers of popu­lation in that rapidly developing country. And I cannot describe what an encourage­ment it was, not only to the Pakistanis them­selves, but also to those of us in London who are interested in this, and I believe to the world in general, that the International Bank stepped in to help.

I cannot make it clear enough to this gathering that there is no question for us in the sterling area of a sort of dog-in-the­manger attitude about foreign investment. We do not wish to keep all our own preserves for our own capital and our own private investors. We warmly welcome those of you who come in from outside. And I know that I am not offending the countries principally concerned when I say that our absolute and definite wish is to develop the life and prosperity of the peoples in our countries, and to use whatever capital we can get from any part of the world in the common good.

I therefore hope that this particular ex­ample will be followed up, and that the fabulous resources within the sterling area itself can be the subject of foreign in­vestors' attention, and especially that of private investors in the United States.

I thought in view of the laudatory remarks of my immediate predecessor in this conver­sation, that I would say something about the current policies in the United Kingdom, so as to show that we have not shed our

[ 53 ]

mantle, that we are going forward again on the path which made our greatness, and will ensure it in the future.

The great bulk of U.S. investment over­seas is still on private account, and I think this is quite a remarkable figure. United Kingdom long-term investment overseas has, since the end of the war-that is, between 1946 and 1953-averaged at least 200 mil­lion sterling a year. This represents over 1% percent of the United Kingdom national income in that period. I am sure my friend, Mr. Humphrey, wouldn't mind me putting the point in perspective. If U.S. investment abroad were flowing in the same proportion to the U.S. national income, it would amount to over five thousand million dollars per annum. That is a very much greater figure than it is at present. Let us live in hopes. May you, sir, cast your bread upon the waters, and it will return to you.

There has, of course-and this I must remember in the presence of so many dis­tinguished economists-been what is called in basic English a certain degree of disin­vestment, not all of it voluntary. So that the net investment averaged about 120 mil­lions.

I think it is very satisfactory that there should have been this resumption of the United Kingdom's traditional lending for de­velopment overseas at so early a stage after the herculean efforts that have been made in the last two wars; and this has, of course, been made possible by the singular gener­osity at a critical period, of the people and administrations of the United States and of Canada, without which we could not have made this recovery.

When Canada is mentioned, we too are beginning to resume our share in this great market which is of such vital importance not only to us but to the world as a whole.

Recently, despite the very heavy burden of rearmament we are carrying, the United Kingdom earned a substantial surplus on current account, and thus we have been able, and hope to be able, to maintain a substantial capital outflow.

The history and experience of the United Kingdom have built up in the City of Lon-

[54 ]

don an efficient and skilled machinery for lending money abroad. The real limitations of lending are the limitations imposed by the rate of internal saving and the state of the balance of payments. But we have made a special effort to provide capital for development in the Commonwealth, and here's an interesting figure:

Grants and loans in 1953 for Common­wealth development totaled over 120 million pounds sterling, and in the first half of 1954 they reached the figure of 70 million sterling. We have also made 60 millions available in sterling to the Bank, and we know the Bank's help for the Commonwealth and the sterling area. That is why we are so pleased in our way to do what we can to back the Bank. Here is indeed a fruitful coopera­tion.

Now, I thought that I might with great audacity try to sum up the sort of code of behavior which experience has taught us in the United Kingdom is the best for foreign lenders. What are the lessons to be drawn from the history of a capital-exporting and capital-importing country? They may sound humdrum, but it is an unfortunate realization of all public men that the truth is very often trite.

If others here, as a result of what I say, can produce a better code, I will leave my mailing address and be glad to hear from them.

So here are some of the articles of our belief and the indications of our United Kingdom practice.

First, there must be respect for contracts and pledges. This does not mean that every­thing must remain unalterable in the changing world. It does mean that there should not be unilateral or arbitrary inter­ference with contracts and the rights of in­vestors. It means that when the rights are taken away there should be fair compensa­tion, and that the foreign investor should be treated at least as well as the home nationals.

And that is the practice we've been trying to follow together in recent unhappy inci­dents.

Second, investors should not look on the country of their investment merely as a place in which to get rich quick, and subse­quently to clear out. To that I attach very great importance indeed. And I would assure Sir Chintaman Deshmukh that there is no longer any question of shaking the pagoda tree, but rather of planting fresh woods and opening up pastures new.

Third, the reinvestment of profit and pro­ceeds is as good as new investment. It in­creases the stake of the investor in the country, and his desire to remain, and the confidence in the host government in him. From our experience, it was this plowing back of profits and proceeds that made possible the great increase in the United Kingdom investment before the First World War.

Fourth, in addition, we consider that the host country should be willing to allow the remittance of profits and the repatriation of capital. Free remittance of profits is of particular importance. It's something which the United Kingdom has always main­tained, even through very difficult times immediately after World War II. It's some­thing which all governments should regard as a prime charge on their balance of pay­ments, and not as a luxury which can be easily suspended, or a concession to foreign capitalists which should be obstructed by special remittance taxes, multiple rates of exchange, or other devices.

Complete freedom for capital repatria­tion may sometimes be more difficult; but if investors are fairly treated it should not, in practice, prove insuperable.

We are constantly examining ways of removing disincentives to foreign invest­ment in the United Kingdom, and we al­ready grant repatriation for approved in­vestment.

My last point is that the lending country should so arrange its affairs that the service of the investment, and its transfer across the exchanges, will not be made extremely difficult or impossible. This means that the creditor country must be receptive to im­ports; but it does not mean that it must

buy imports from the host country at any price, in order to provide the exchange to service the investment.

That, sir, is the result of our experience, and, as I say, I shall be only too glad to hear whether it can be amended or improved. It's not intended to be a comprehensive code of good behavior for those who indulge in foreign investment.

International organizations have worked out detailed codes of this type. But, put simply, the important contributions to your thought that I can make are, first, that countries needing capital should act in a way that will give confidence to the investor and that countries able to lend capital should not arrange their affairs in such a way that service of the capital is made extremely difficult or impossible.

We cannot allow ourselves to think in terms of complete freedom of the move­ment of capital. That comes only after the freedom, towards which we intend to work, to convert one currency into another, and an era of freedom of trade without quota restrictions. Both of these would greatly assist and aid capital movement.

We intend to press forward with these two objectives. Of course, I have no wish to encourage reckless lending or borrowing. There are limits to the influence of inter­national capital in promoting expansion and development, and in promoting production and trade. But it is clear that those of us taking part in this discussion today are engaged not only in examining, but looking forward down the one imaginative path ahead for the statesmen of the free world. The fullest and best use of the international capital resources which are undoubtedly available will not only tie the interests of capital and labor more closely together in our various countries-it will tie our coun­tries themselves closer together. And it will provide that background against which we can show the world that we are in fact working towards one free world, and that we finance ministers are not just engaged in basic economics, but have the major foresight to help keep the world not only free, but united and strong.

[55 ]

ACCREDITED MEMBERS OF DELEGATIONS

AT NINTH ANNUAL MEETING

AUSTRALIA

Governor SIR ARTHUR FADDEN

Alternate Governor ROLAND WILSON

Advisers L. H. E. BURY

(Executive Director) B. B. CALLAGHAN

(Alternate Executive Director) S. F. A. BRYSON

C. W. CONRON

B. E. FLEMING

H. R. WOODROW

AUSTRIA

Governor REINHARD KAMITZ

Alternate Governor WILHELM TEUFENSTEIN

Advisers ROBERT BAIER

HANS KLOSS

BELGIUM

Governor HENRI LIEBAERT

Alternate Governor MAURICE FRERE

Temporary Alternate Governor HUBERT ANSIAUX

Advisers THOMAS BASYN

(Executive Directo1") JEAN GODEAUX

(Alternate Executive Director) ROGER OCKRENT MAURICE TOUSSAINT

BOLIVIA

Governor AUGUSTO CUADROS SANCHEZ

Alternate Governor FERNANDO POU MONT

[56 ]

BRAZIL

Governor EUGENIO GUDIN

Temporary Alternate Governor GLYCON DE PAIVA

Advisers WALTER BLOMEYER

J. C. GOUVEA, Fo.

OCTAVIO PARANAGUA

BURMA

Governor U TIN

Temporary Alternate Governor U HLA MAUNG

Advise't V OHN KHIN

(Alternate Executive Director)

CANADA

Governor WALTER E. HARRIS

Alternate Governor A. F. W. PLUMPTRE

Advisers LOUIS RASMINSKY

(Executive Director) J. H. WARREN

• (Alternate Executivf Director) G. FREEMAN

A. HOCKIN

CEYLON

Governor M. D. H. JAYAWARDENE

Alternate Governor R. S. S. GUNEWARDENE

Advisers D. P. H. P. ABEYSEKERA GAMANI COREA WILLIAM TENNEKOON

•

CHILE

Governor ARTURO MASCHKE

Temporary Alternate Governor JULIO VON MUHLENBROCK

Adviser JORGE SCHNEIDER

(Alternate Executive Director)

CHINA

Governor PEH-YUAN Hsu

Alternate Governor TSE-KAI CHANG

Advisers KAN LEE

(Executive Director) Tsoo-WHE CHU T. Y. LEE BEUE TANN TSWEN-LING TSUI

Kuo-HwA Yu

COLOMBIA

Governor MARTIN DEL CORRAL

Adviser FERNANDO GAVIRIA

COSTA RICA

Governor JORGE ROSSI

Alternate Governor MARIO SABORIO

CUBA

Governor LUIS MACHADO

(Executive Director) Alternate Governor

JOAQUIN E. MEYER

DENMARK

Alternate Governor HAKON JESPERSEN

Temporary Alternate Governors SIEGFRIED HARTOGSOHN ERLING KRISTIANSEN

[57 ]

DENMARK (Continued) Advisers

ERLING SVEINBJORNSSON (Executive Director)

HANS F. BOSERUP V. HOELGAARD

H. H. STEVENIUS NIELSEN

DOMINICAN REPUBLIC

Governor S. SALVADOR ORTIZ

Temporary Alternate Governor JOSE JOAQUIN GOMEZ

ECUADOR

Governor LUIS ERNESTO BORJA

Temporary Alternate Governor JOSE C. CARDENAS

EGYPT

Governor MOHAMED AMIN FIKRY

Alternate Governor AHMED NAZMY ABDEL-HAMID

Advisers GAMAL EL-DIN ANIS ABDEL GALEEL EL EMARY

HUSSEIN F AHMY ALY GRITLY

EL SALVADOR

Governor CARLOS J. CANESSA

Alternaf;e Governor LUIS ESCALANTE-ARCE

ETHIOPIA

Governor ATO MENASSE LEMMA

Alternate Governor WALTER ROZELL, JR.

FINLAND Governor

KLAUS WARIS Temporary Alternate Governor

GUNNAR PALM ROTH Advisers

VEIKKO MAKKONEN (Alternate Executive Director)

JOHAN NYKOPP

FRANCE Governor

EDGAR FAURE Alternate Governor

ROGER HOPPENOT (Executive Director)

Advisers MAURICE PEROUSE

(Alternate Executive Director) PAUL BERTIN

FRANCOIS DE LA BOULA YE PIERRE CALVET PAUL DELOUVRIER

PIERRE ESTEVA JULIEN PIERRE KOSZUL

JEAN DE LARGENTAYE ANDRE DE LATTRE GUY DE LAVERGNE GABRIEL LEFORT ROBERT MONOD

PIERRE-FRANCOIS QUEUILLE JEAN SADRIN

PIERRE-PAUL SCHWEITZER JEAN-PIERRE SUSSEL

MAURICE VIAUD

GERMANY Governor

LUDWIG ERHARD Temporary Alternate Governors

JOACHIM VON SPINDLER LUDGER WESTRICK

Advisers OTTO DONNER

(Executive Director) KARL-HEINZ DRECHSLER OTMAR EMMINGER CURT ERBSTOESSER ROLF GOCHT GUENTHER GROSSE KARL HOHMANN HANS RANNOW FRITZ STEDTFELD

GEORG VOGEL

GREECE Governor

GEORGE A. MANTZAVINOS Alternate Governor

GREGORY ZARIFOPOULOS Adviser

COSTA P. CARANICAS

....... _----- ...............•.• _--_.

[58 ]

GUATEMALA Governor

GUSTAVO MIRON Alternate Governor

MANUEL BENDFELDT J. Adviser

MAX JIMENEZ-PINTO

HAITI

Alternate Governor CHRISTIAN F. AIME

Adviser GERARD MARTINEAU

HONDURAS Governor

RAFAEL HELIODORO VALLE Adviser

PAUL VI NELLI

ICELAND Governor

JON ARNASON Temporary Alternate Governor

SVANBJORN FRIMANNSSON

INDIA Governor

CHINTAMAN D. DESHMUKH Temporary Alternate Governors

G. R. KAMAT (Executive Director)

G. L. MEHTA Advisers

V. G. PENDHARKAR (Alternate Executive Director)

P. D. KASBEKAR

P. S. NARAYAN PRASAD

INDONESIA Governor

ONG ENG DIE Alternate Governor

LOEKMAN HAKIM Advisers

KHOUW BIAN TIE A. FRANS OMP! TAN SlOE THAY ZAIRIN ZAIN

IRAN Governor

ALI ASGHAR NASSER Alternate Governor

DJ ALALEDDIN AGHILI

IRAQ Governor

AWN I KHALIDY Alternate Governor

MUDHAFFAR H. JAMIL

ISRAEL Governor

DAVID HOROWITZ Alternate Governor

MARTIN ROSENBLUTH Advisers

ELIAHU A. COHEN ERNST A. LEWIN

ITALY Governor

DONATO MENICHELLA Alternate Governor

GIORGIO CIGLIANA-PIAZZA Advisers

FELICE PICK

(Alternate Executive Director) PAOLO BAFFI ENRICO CARRARA MARIO FERRARI-AGGRADI CARLO GRAGNANI ATTILIO JASCHI MASSIMO MAGISTRATI EGIDIO ORTONA GIOVANNI RIVANO ALDO ZIGLIOLI

JAPAN Governor

SANKURO OGASA WARA Temporary Alternate Governors

TORAO IGARASHI GENGO SUZUKI TAKES HI WATANABE

JAPAN (Continued) Advisers

TAKEO YUMOTO (Executive Director)

KANICHI OSHIMA TAKAYOSHI TSUDA KATSURO VEDA

HIROMU YAMAMOTO TAKAYUKI YOSHICKA T AROICHI YOSHIDA

JORDAN Governor SAAD NIMRY Alternate Governor

EL-SHERIF MOHAMMAD SHARAF

LEBANON

Governor ANDRE TUENI

Alternate Governor RAJA HIMADEH

LUXEMBOURG

Governor PIERRE WERNER

[59 ]

Temporary Alternate Governor PIERRE GUILL

MEXICO

Governor ANTONIO CARRILLO FLORES

Temporary Alternate Governors RAuL MARTINEZ OSTOS ALFREDO NAVARRETE

NETHERLANDS

Governor J. VAN DE KIEFT

Alternate Governor A. M. DE JONG

Advisers D. CRENA DE IONGH

(Executive Director) L. R. W. SOUTENDlJK

(Alternate Executive Director) WILLEM DREES MISS G. A. KOEN H. M. H. A. VAN DER VALK

NICARAGUA Alternate Governor

ALEJANDRO BACA MUNOZ Adviser

JORGE A. MONTEALEGRE

NORWAY

Governor GUNNAR JAHN

Alternate Governor OLE COLBJORNSEN

Advisers ALF ERIKSEN HALLVARD HILLESTAD GABRIEL KIELLAND

PAKISTAN

Governor MOHAMAD ALI

Alternate Governor SYED AMJ AD ALI

Advisers MOHAMMAD SHOAIB

(Executive Director) ZAHEERUDDIN AHMAD A. G. N. KAZI

PANAMA

Governor MARIO DE DIEGO

Adviser JULIO E. HEURTEMATTE

(Alternate Executive Director)

PARAGUAY

Alternate Governor JULIO C. KOLBERG

Adviser PERSIO DA SILVA

PERU

Governor FERNANDO BERCKEMEYER

Alternate Governor EMILIO FOLEY

Advisers PEDRO CASO CARLOS GIBSON

PHILIPPINES

Governor MIGUEL CUADERNO, SR.

Temporary Alternate Governor AUGUSTO FRANCISCO

Advise1's MARIANO LAUREL VICENTE L. PERALTA AMADEO R. QUINTOS NICANOR TOMAS

[60 ]

SWEDEN

Governor N. G. LANGE

Alternate Governor K. A. LUNDGREN

Advisers S. T. G. AKERMALM E. VON SYDOW

SYRIA

Governor HUSNI A. SA WWAF

Temporary Alternate Governor ADNAN FARRA

THAILAND

Governor SERM VINICCHAYAKUL

Advisers LUANG CHAMNAN AKSARA CHINTAMYE AMATAYAKUL CHALERM CHEO-SAKUL CHALOKE KOMARAKUL PIPAT KRAIRIKSH BUA SAJISEVI BOONMA WONGSWAN

TURKEY

Governor FERIDUN CEMAL ERKIN

Alternate Governor MUNIR MOSTAR

Adviser EMIR SENCER

UNION OF SOUTH AFRICA

Temporary Alternate Governor J. E. HOLLOWAY

Advisers A. A. M. HAMILTON H. L. T. TASWELL

UNITED KINGDOM

Govern01' R. A. BUTLER

Alternate Governor SIR LESLIE ROWAN

Temporary Alternate Governor REGINALD MAUDLING

I

UNITED KINGDOM (Continued)

Advisers

D. H. F. RICKETT (Executive Director)

M. T. FLETT (Alternate Executive Director)

R. T. ARMSTRONG A. W. FRANCE SIR ROBERT HALL LORD HARCOURT J. E. HERBECQ P. J. KEOGH S. C. LESLIE G. DE MOUBRAY J. G. OWEN L. PETCH F. J. PORTS MORE D. SPIERS M. STEVENSON

UNITED STATES

Governor GEORGE M. HUMPHREY

Alternate Governor SAMUEL C. WAUGH

Temporary Alternate Governors W. RANDOLPH BURGESS ANDREW N. OVERBY

(Executive Director) FRANK A. SOUTHARD, JR.

Advisers JOHN S. HOOKER

(Alternate Executive Director) HOMER E. CAPEHART GLEN E. EDGERTON GABRIEL HAUGE

WILLIAM McC. MARTIN, JR. A. WILLIS ROBERTSON CHARLES E. SALTZMAN

[61 ]

UNITED STATES (Continued)

MARSHALL M. SMITH BRENT SPENCE LYNN U. STAMBAUGH HAROLD E. STASSEN M. S. SZYMCZAK SINCLAIR WEEKS JESSE P. WOLCOTT

URUGUAY

Governor NILO R. BERCHESI

Alternate Governor ROBERTO A. FERBER

VENEZUELA

Governor J. J. GONZALEZ-GORRONDONA

Alternate Governor HECTOR ESTEVES, JR.

Adviser FELIX MIRALLES

YUGOSLAVIA

Governor VOJIN GUZINA

Alternate Governor NIKOLA MILJ ANIC

Advisers ANTONIJE TASIC

(Alternate Executive Director) SVETOZAR MARKOVIC VLADIMIR PRITA ZIGA VODUSEK

OBSERVERS

AFGHANISTAN ABDUL RAUF HAIDER

BANK FOR INTERNATIONAL SETTLEMENTS

ROGER AUBOIN ANTONIO RAINONI

CONTRACTING PARTIES TO THE GENERAL AGREEMENT ON TARIFFS AND TRADE

ERIC WYNDHAM WHITE

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

E. BURTIS

INTERNATIONAL LABOUR ORGANISATION

THACHER WINSLOW

KOREA PRA YAD BURANASIRI WAN Mo HONG Yoo TAlK KIM DUK CHOO MOON CHANG SOON Yu

[62 ]

ORGANIZATION FOR EUROPEAN ECONOMIC COOPERATION

J. F. CAHAN ATTILIO CATTANI FRANCOIS CORBASSON H. J. B. LINTOTT

ORGANIZATION OF AMERICAN STATES

L. M. DOMINGUEZ HAROLD PILVIN

TECHNICAL ASSISTANCE BOARD WILLIAM MCCAW

UNITED NATIONS Roy BLOUGH

G. GEORGES-PICOT

FOLKE HILGERDT

PAUL JOHANSEN

SIDNEY MERLIN

RAOUL PREBISCH

WORLD HEALTH ORGANIZATION R. L. COIGNY

OFFICERS OF THE BOARD OF GOVERNORS AND PROCEDURES COMMITTEE FOR 1954-55

OFFICERS

Chairman _________________________________________________________________ EGYPT V ice Chairmen ___________________________________________________________ CHIN A

PROCEDURES COMMITTEE

FRANCE INDIA UNITED KINGDOM UNITED STATES

Chairman _________________________________________________________________ EGYPT Vice Chairman ________________________________________________________ COSTA RICA Reporting Member _____________________________ .GERMANY M em bers _______________________________________________________________________ CHIN A

[63 ]

FRANCE INDIA JAPAN PARAGUAY SOUTH AFRICA TURKEY UNITED KINGDOM UNITED STATES