INTE.RNATIONAL RANK :F'OR F.E;CONSTRGC~PXON 1Pm DEVELOFY.:ENT 'rho f - - PDF document

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UN'I

1-L!~l·:. LOHDON TIME

T'I.-£1 :rJ01\;m Ol1• GOV~Jfo.'OHS

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Tb]~ INTERNATIONAL BANK

Press Ho lease No, 65

'l'he t5c,cond Aml"tial Report of the Intc·r

and Development, as a.ppro-v{\Q l;)y the Executiv? _);~rectors, 1vas :)resented today by John J. l~cCloy1 the Bank's Pr.asident, to the Bourd of Governors at their Second Annual Eeeting in London, The repo:::t reflects the activ5.ties of the Bank since the First Annual Meeting in Sep·:i,1·th3r 1911-6; explains the Bank's

role in helping to meet the ::,r;)blema facing 1,,:3.r-torn EL1rope and the eco- nomically underdeveloped countrfos of Latin kro:rica, Asia., Africa and the

},.:iddle ::Tiast; and sun1rna:-ciz,0s the ;irinciples adopt(3d by the Bank for carrying

• ut its a:;_)pointed functions,

:D'i!lancla.l s·!:,t:1. t(m1cnts cov13ring the fiscal yenr end·ed June JO, 1947, a.11d the administrci.t1ve budget fo'!:' the fiscal year e11ding June _30, 19,4S ri.re also :included. During this second year of its existence the Bank began the opGration-.

al phase of its actlvitics, both as louder and borrower.

As s:10-wn .by the rcr•ort and supplemental ma terin.l 1;1ado available to the Governors, fou.'t' loans,

aggregating )!1-97,00C,ooo, havG been me.de, and an J.lli tial {)250,000,000 of the Bank's bonds wore floa

t~~d in ·the United Stu

tcs ea.pi

tal market,

The repo1,t em,h~isi ze

11 tha. t in order to carry out its task of holping

to raisG the lev0l of wo1·ld "?roducticii i1s e;rca.tly and as raJ.)idly as possible, the Bank must concentrate on nthose :t:i:i;•ojGct.s or progz•ams •••

which prom:Lst:l the

greatest increase in Pl"Odtictive ou~)1..1,t in the sho1,tuGt possible time."

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Aceordingly1 the Ba:r..1< htw up to now nocossar:i.J.y given part:i.culo.r emphasis to the problems of European recov0ry, The ror_)ort notes the snbstant,fa.l

pro~";resfJ townrd rentora.tion of prewar p1

.. odnct~.on lovclo alr~mdy achieved by

the E1.1ro::.x::an countries themselves, but points out that this pro3ress has not

becm uniform and that the vaet e::-:tent of war 0.a.mago m·.1k·~s it necessary to

di vort much of these countries' production to the rr;;storation and renewal

• f thoir basic stocks of wen.1th.

Threr::: major bottbnecks,· in th€ Bank's view, :tmpedo European re-

com;truction,

They are food., fuel and :mc.npowGr,

T:10 la.ck of all three

prevcmts full U3e of J1\1r()pe' s rosources ar..d makes n:1cesso.ry abnorrrial impol

.. ts

from abroo.d. The shi.n·ta.ge of .food, the re1)ort states, not onl:r µresents a problem

• f subsistence tut irnrr:orwo1y complicc:L tos th(3 task of restoring Eu.rope's

industrial productton1 "for ad()quat,3 food to sttp})ly o.n.l maintahi vitality is a.s essential e.s ad:;)quc.. te machino:-cy to enab:.1.c worh:rs to achieve their full l)roductivi

ty." lfost of the food ti:) make up .Enropo 's dclfici

t must come

from the high-priced dollar area; the drt1.in on J1'uropea.11 dollar resources

is indicated by thG efit~mate that "expendit~1res in 191:-'7 fol" imported grain

and gra:ln products frt1m the United [3ta

t~1s and ArJentina alone will amount

to ~jJ., 200 nti..llion, or six times the cost of such prodltots from these area:3

in 1939."

Sintlla.rly

pecially coal, e.s at the heart of tho industrial product.ion problem.

Eur0po' s coal product:i.011 form.Grly ri11:.rt n<.1arly all her no0ds.

Now it falls

far short and th0 dof:lci t can be only pn1~t1y made up by United States c,oal,

which must be !)aid for iD see.rec dollc,rs a11d il1Vi.;lvos liuge shipping costs,

In an effort to a ttaok t!·ds bottlonocl: the B;:1.nk sent a technloa.l group to

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survey the coal fields of Silcisfo. and the Ruhr, and has bcon investigating the possibilities open to it, to he.lp incri)aso coo.1 production in Et1ropo.

Th0 third groat impediment to Europoan recovery is tlw shortago of ma111:,ower. Tho Bank stresses tho.t much still re:mains to be done to r0-

intogrn.to into tho econon"y the labor forces d:i.slocatod by the war. It points to tho "large pools of manpower which are either employed in non-

tJrod1.:wti vc pursuits or ,:Lro not er.1ploycd at all" -- in displaced perso:1s co.mps, in armies a:,1d munition fai3tories: ,~nd in swollen govort.1.!ncntal (:H3tnbli3hments -- a::; potential sources o:t: manpower for vital production.

It snggeGts also tho possiblli

ty of pormi t-ting sur1:Jlus German and Italian

worl:crs to irrrrn.i.gr.:tto voluntm.~ily into labor-d0fici

t aroas.

nEurope itself must m::tko the rn:?..j0r contribution to tho solution of

all of those r;:,robJ.onis", tho report sta

tos.

"Outside assisto.~·.:Jc is vital,

but it rc)resents a small :;~rconte.go of the tot.o.l effort,."

'l1ho roport

stresses that notable progross has already boon made by mrmy countries, but that it is necossa:cy for thE) European nations themselves, individually

• r col.l,)ctivoly, to tak0 furth(~r stops.

One of tho most im~-;iortant is to

restore intorne;l .f'ine.ucio.l stability through 001.md bu.d3otary and tax I)ractic0st

Othors are to intograte thG various Europc~n J:•oconstructicn pror;rams so as to r.i.void ov,)r-lapp1.ng and take full t'.dvantago of la.bo:t·

speoi.o.liza. t:i.on; to remove or lower trado barriorn; cmd, subj oct to neces-

sary socuri ty pro cautions, to ut:i.liz0 G0rmanproductivo facilities.

Rucognizing that tho final n'l

ture and scope of the M:t1·shall Plan ennnot h(:}lp but affect the Bo.nk ts role in European reconstruction, thG report sti..gg,-;ut::; that the d:i.scnss1.ono now going on in P~1.ris may provide an

• pportunity f'or tho Euro:peari nr.i.tions t~ work out tog(.:ther some t1echanism

for ins

ti

tu ting the nccess;.u.7 r::easuros of economic reform and cooperu

t:ton,

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and states the Bank'G desire to give any possible as3istnnce. The only loans granted by tho Bar1k before Augunt 10, 1947,

• f the period covered by the report, were to France and the Netherlands,

in the amounts of f~250,ooo,ooo and (~195,000,000 res,ectivcly. The report

s1.11nmarizes tho reasons for each credit and the conditions a

ttachod to them. Additional material describing two loo.ns grantod since August 10

(~40,000,000 to Denmark and ($12,000,000 to L11~c0mbourg -- is also being pro-

sentod to the Governors.

Although the most pressing ce.lls -upon the Ba.riJ!': have boon for pv.r- poses of European recovery, the ropor·G stress0s th~t reconstruction o.~1d

development needs in other areas -- Latin America, Africa, Asia, and tho Middle East -- are also being s.ctively considered. "Indeed it should not

be ver.y long before the financing of d0velo~)J~1ent :proj octs in those 0:rcus

will te.nd to bGcome tho primo.r1 concern ct the Bank,"

The Bartl<: cannot do tho whole job, the repor·t makes clo::ir, b0cav.se

the development work that appears feasible requires fino.ncio.1 c.nd tochrdcc~l help in amounts which only the free flow of ?t·ivo.tE.l ca.pi tc.l can provide~ The Bank's aim is to stimulate and assist this private investment.

The

report suggests that for many pi"osycctive borrowers tl::.e flrst st~p toward

reoponfa,g the flow of capi

• taJ. is to clear up their e1::tornal debt record by

rca.ching f~ir settlement agroomonts v.d.-th their creditors. The possibility

• f setting up an impartial body of ox:;orts to ri;:;commond just settlements,

as woJ.l o.s to propose mcasuros to pla.ce the finances of tho oountr:Los con- cerned on a sound basis 1 is suzgostcd; the Bnnk sta.tes ;tts willing11ess to ~nsist in any such of'forts

• A loan from the Baitlr. would not noc0ssa.rily be contin.:;0nt upon.

coroplGtion of all remedi~l measures required to improve the prospective

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borrower's crodi

t standing, tho re,ort otnphusizcs.

Indo0d, "fim.ndal

assistance from the Bank 111ay form part of un integral plan involving both

lone-range fina.11cin.l reform c.nd long-range dovolopmont of product:i.vc

fncili

• tios. n But tho Bank ncannot o.ssist a country which nci

thcr lw.s •• •

stnbili

ty or crGdit nor a w:l.llingn0ss to take action to achieve thou

..

Such lending would be ncd

ther prudo11t nor productive. F\u·thermore, it

would cause tho Bank to loso tho confid0ncc of tho investment con11;i1.mity,

and., vrl th it, tho v0ry oource of the :rr~jor port~ 0n of its loano.blo funds. n In this connoction the report l1oints out tha.t tho Bo..nk 1 s po.id-in capital a.mounts to 011.ly about ~~1.,600,000 10("'0, of t~h:i.ch onlJr about

~'725,000,000 is in United States dollars. Any additional amounts of

loanable funds mu.st be ob-tain..::d from the sale of sccuri

ties to :?rivnto investors, for th0 present ::rincipaJ.ly in tho 'Onifod Stn.tos,

Tho Bank's first murkot:Lng oporation --. comprising t~l50,000,000

• f 25-ycur 3% bonds due J"uly 15, 1972, c.nd 0100, 000,

000 of 10-ycar 2i%

bonds duo July 15, 1957 -- was highly suoc0ssfv.l.

• fforod on July 15, 1947 through ovo~ 11700 securitiQS dealers -- more

than twice th0 largest nu.i""r.lbor tha:t had ,.JV0l

single sccuri ty distr:tbutfon.

However, the report states frankly that

a major factor corrtiribu.tipg to tha. success of tho o:rfo:dng was· tho

gunra.ntoo afforded by tho 80:~ uncalled portion of ·l·,h0 Uni

tcd Sta'bGs su°"

scription to the Bank's cc~~,i ta.l.

As tho Br.mk' s lending operations oxpand, 1 ts ability to borrow will dcpcmd mo:"'.'o and more u.pon the pri

• va. te invos

tor

I s

judgment as to ·tho so1.mdn1Js:J of its loan portfolio, The be.sic cht\ractcr Qf the Bank's lonns is defined by the .Art:i.olos

• f Agrooment.

In o.ddi

tion., out of th$ c;~:)orienc0 of tho :?r.i.st two years,

\_....._,.._......,,:11,;,v,.~ '*

more detailed lending principles hr:i.ve emerged; they a.re SUlllIOO.rized bri·:;fly

in the report. In po..rticular, the Bunk stressGs tho importance of 1,1s:tng

its funds so "us to rosult in ·the greatest posslblo incrocso in prodnc-~

tivity in tho shortost possible time," and thus "provid0 a c3.talyst by

which production may be a0norully stim.ul·.1ted and privntG invcstme11t on-

couragod." The Ba14\ ~refer~ that its mombors, bGfore filing a formal loan a:?i)licution, conduct o:x...,nloratory discussions with roprcsonto.tivos of tho Bank so th2

.. t the !)ros~1octiv0 borrower may fro.me its plans to fit tho

policies and requiromonts of tho Bartle. In its invoGt1.go. tion the Bank looks not only into the specific progr,t.Un or prQj cot for wh:ich funds are

sought, but also into all impo1,

.. tn.nt ~S~)Gcts of tho borrowor I s cconon,ic

pos:!. tion. Poli t~.cal condi ti.ons aro considered to th.J oxton.t that thoy

:t:1ight o.ffect tho borrc,wor' s financial and ooononrl.c pros,-:,oct~).

Th0 report states that, in granting loans, tho Bank limits its comnii tmont as much as is practico.ble. Where a. lo11g-t0rm roconstruc·lifon

• r dovelopmcnt plan is involved, the Bank usually lends at first only

cmoueh to cover an ini t:i.al period, leaving the rernaindo1" of th0 o.ppli-

ca tion to be considered in the 11~ght of progrosn during this peri.od,

Tho Bank mah1to..ins controls to $CO that the proceeds <)f 100.11s ar~) used only

for the purposes int~nded, and keeps in close contact with the borrow.tng

country to assure thn

t the loa.n co11tribut0s as oxpectod to tho :r.'00011-

stru.ctlon or development plan. Eost of the loan hpplications so far submittc~d have come ft·or.1

European members, the :r;-eport discloses. Apo.rt from the four countries

to which loans have already been extended, apµlications have bean

• 7

received from tho following co1u1trios for the amount.a and purposes in- dicated: Chilo, :.:140,000,000 fo1

... hydro-electric, forestry, harbor, urba.n

and suburban transport, and railway projects; Czechoslovalria, ))50,000,000

fer roconstruct,,j.on of war clam::.ge and losses, restocking of r~.w materials

and rchabili

tation -~)rojocts; Iran, $250,000,000 for modernization and

dovolopmont of induntr:r, agriculture and tranoport; Mexico, :)209,000,000 f:-,r irrigation, hydro-electric, pipeline, highway, rq.ilroac~ and h-1rbor

l)rojocts; Poland, \?oOO,OOO,OOC for equipment and materiel.ls for recon-

struction of coal mining, iron and steel, textiles, electricity and trans:)ort.

Eot1borship in tho Bank increased f:i.~om 33 to /,,5 during the ~Joriod

covered by the ropo~·tt with the adrrrl.sstc·n of Colombia, Vonezuelt:., Turkey;

Italy, Syria., Loba11011 ~r1d Australia.. In addition, a.n ap~?lication for

mm::borship has boon rocoivcd from Finland o.rnl is the subject of a special

report to the Board of Govornnrs.

The administrative budg0t for the fiscal yen.r ending Jun0 30, 191+3 pr01)3.rod b~r the Fresidont and a.t)?roved by th0 E::;.;;:ecuti ve Directors con- tot1:1?lo.tos 1.3X:)Ondi tures of :;.i4, 361,000 dul"'ing tho yen1~. Of this total

)3,

8621 500 re:..::>roscnts ac:lministra

ti

vo expenses, includlnG salarfos, rent, s12,~1:)1i0s and equipr.ient, contribution to ntai'i" bonefj_ ts and contingoncios.

The rernaini11g $498,500 cor.1prises 0xpensos for the offices of tho Exe

cu

ti

vo

Dir0ctors n.nd for tho Annu;::.l Hooting o~ the Board of Governors,

In (lddi tioL,

it is estiT.nted thc.t bond rogJ.strntion c.nd ir:isuc~nco ex";)ondi turos for tho

year will uggregJ. t0 (:>3, 987,000

• The sta

temo11t of incomo ,.v1d :Jxponsos for the year ended June 30,

1947 and the balanc·:;) shoot as of Juno 30 1 1947 conta.i11od in tho report had

beon subrti.

ttcd :previously fo the Governors .:md 1~1:;lG!;l.SOd to tho pros;3 on

J-uly ;l9.