Bubley . INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT SEVENTY-FIRST SPECIAL MEETING of EXECUTIVE DIRECTORS Board Room International Bank Building Washington, D. c. Wednesday , June 2, 1954 The meeting was convened at 10:05 a.m., Mr. Eugene R. Black, President, presiding. STRICTLY CONFIDENTIAL 2 * * * 24 THE CHAIRMAN: The next item ot business is a report which has been dratted tor transmittal to tbe United Nations on the proposal tor an International Finance Corporation. I think the report speaks for itself, and while there is no capital pl'esently available to justify' the creation or this corporation, we thought it advisable, in view of the terms or the resolution, to include some analyses ot some ot the issues tbat have been STRICTLY CONFIDENTIAL 25 raised when we diecussed this matter. You will note that the report makes it clear that this 1s a report by the Management of the Bank. However, we thought the transmittal letter should be amended by the addition of a paragraph which would read as follows: "The attached Report has been prepared by the Management of the Bank anQ., in authorizing its transmittal, the Executive Directors are not expressing any opinion on behalf of the Governments they represent with respect to the policy issues discussed in Section II of the Report." Now, I understand that Mr. Shoaib has requested a week's delay, or a delay to study this report. I don •t know what he wants to study. MR. SHOAIB: Mr. Chairman, may I make my position clear. For some reason or . other, I got this report for the first time when I came back, and the first time I saw the report was about six in the afternoon yesterday. I just haven't had a chance to even look at it. That was the reason I tried to get you to delay it. I haven't even read the report. I haven't had time to glance at it. I didn't feel that I could act on it. THE CHAIRMAN: Well, Mr. Demuth, how big a hurry are you ? in on this thing- MR. DEMUTH: Mr. Chairman, unfortunately we are late on this already. Under the rules or the Council, it was due on 26 STRICTL CONFIDENTIAL the 18th of May. MR. SHOAIB: May I suggest that having been late by about fourteen days, it might be later by five or six days. As long as you're late -- MR. DEMU'l'.H: The only .difficulty with that is that it bas to be .translated into a number or languages by . the UN Secre- tariat and distributed to the various governments. THE CHAIRMAN: Can't you read it this atternoon? MR. SHOAIB: Mr. Chairman, ve have a party going at 1 :00 o'clock at the Embassy of Pakistan, and then ve have the loan signing at 4::,o. In the meantime, Mr. Garner is out tor my blood. If it can be done later, Mr. Chairman-· SIR EDMUND HALL-PATCH: Mr. Chairman, couldn't ve leave it like this, that if my Pakistani colleague has any objection to the report after he has read it, he will then notity you, and unless be has an objection the report can be considered as approved without coming back to the Board again. THE CHAIRMAN: Will that be all right? MR. SHOAIB: Yes. . TBE CHAIRMAN: Then we '11 wait until we hear from you -- and do it as soon as you can. MR. HOPPENO'l': Mr. Chairman, I have no very strong op1n1o one way or the other, and I must confess that I did not con- sult my government on that paper, which does not prevent me from approving the position taken 1n that paper, but I wonder 27 STRICTL CONFIDENTIAL if, maybe not 1n this case but some other case, it vould not prove embarrassing for this Board as a Board, and maybe for the Executive Directors, to allude to the tact that the Exe- cutive Directors express an opinion or don•t express an opini- on on behalf or the governments they represent. My general reelillg vould be that we act as a body and when we present ourselves to the outside world it is as such, without referring to the instructions that ve may or may not have received rrom our governments, and vhich, in fact, are not foreseen in any or the articles or by-laws that govern o debates. I would like to have your opinion on that. As tor m:y- se.lt, I don't 1n the least request to be quotecS. as expressillg or not expressing an opinion on behalf or my government. It is something that is between my government and myself, but has not :to be quoted. THE CHAIRMAN: Well, Mr. Hoppenot, on April 29, 1952, a letter was sent to Trygve Lie enclosing a report made by th Banlc on the proposal tor an International Finance Corporation and, at the request or the Board of Directors, we were asked to insert this paragraph: "You will, ot course, appreciate that in authorizing transmittal or the attached report the Executive Directors are not expressing any opinion on the merits or the proposal or any opinion on behalf or the Governments they represent." STRICTL CONFIDENTIAL 28 This was done at the request. or the Board. We have no objection, as tar as the Management is concerned, to haviDg the Board approve this memorandum. But this was done at the request or the Board. MR. BURY: Well, Mr. President, I have some doubts about ltlether it was a. particularly good decision . that .we made at that time. It is a difficult problem, because in one sense, if the Bank puts out a document the Bank does it as an insti- tution, and to talk to outside bodies as it the Bank consists of a number ot different parts among which there is very lit- tle coordination does come oddly to some people, particularly in governmental circles, because an official sends a report and it is a governmental report 1n a sense, but they wouldn't r attach to that a remark that the ministers were in no way re- sponsible for this or that. Now, we certainly made this decision and vhat you have just done is 1n line with it, but I don't ~ow, really, vheth we decided very wisely. THE CHAIRMAN: A.s far as ve are concerned, ve are per- fectly agreeable to leaving this out. We did it before be- cause ve were asked to. We would be delighted to leave it out. MR. BURY: I don't think it would be very serious anyhow 1t the report did come betore the Economic and Social Council from the Bank as such and governmental delegates expressed STRICTL CONFIDENTIAL 29 disagreement vith it. I don't think anyone would really re- gard that seriously. SIR EDMUND HALL-PATCH: Well., Mr. Chairman., I think it is important that in a case of' this sort vhere the report or the Bank is going to an inter-governmental organization., where t, governmental representatives are going to speak., we should not here attempt 0 prejudice or take any action which might prejudice anything that any government may wish to say on the Economic and Social Council. I think that was the point or this passage in your letter of' April 29., 1952. I would f'eel rather hesitant., myself'., of' expressing any views here which might be construed as the formal approval by the governments concerned of this report., which is., 1n effect., to be considered and decided upon by the Economic and Social Council. There are other factors than the purely financial issues here with which we are dealing. MR. HOPPENOT: I may very well have approved that first thing and have thought about it atter. Suppose that instead of saying., "The Executive Directors are not expressing any opinion on the merits or any opinion on behalf' or the govern- ments.," you said., "The Execut1 ve Directors are express1ng the1 opinion on the merits of' the proposal and their opinion on behalf' ot the governments they represent." Do you reel that the Bank's paper could go out vith a wording saying that this Board expresses an opinion on behalf or the governments we STRICTL CONFIDENTIAL represent? That might open the vay to minority reports. The Board has acted that way as a majority., and now two or three indi- viduals or collective members of the Boa~le a minority . . report. In other words 1 do we act as a board or do we act as a consensus or government? MR. OVERBY: Mr. Chairman. THE CHAIRMAN: Yes1 Mr. Overby. MR. OVERBY: I think we could have a long constitutional discussion it we wanted to., but in this particular ease I would think that consistency might be in order., and I should think we might follow the general outline of what you have read oft I vhioh is along the lines or the previous thing. I think we could discuss the constitutional question for a long time. THE CHAIRMAN: Would you like to say thi1, "The attached Report has been prepared by the Management or the Bank. In authorizing its transmitta~ 1 the Executive Directors are not expressing .any opinion on behalf ot the Governments they repre sent as this will be done at the meeting of the Economic and Social Council." Do you want to do that? MR. HOPPENOT: What I would find . perfectly 1n keeping ' would be to stop with ~he proposal." say 1 '\re are expressing no opinion on the merits of the proposal 1 " and what happens STRICTL CONFIDENTIAL 31 between our governments and ourselves is nobody's business, to . put it very simply. In other words, I don't see any reason why we should involve our governments. MR. PICK: I would rather agree with Mr. lioppenot's pro- posal and leave out that the Executive Directors are not ex- pressing any opinion on behalf of the governments they repre- sent. THE CHAIRMAN: Does that . suit you, to just leave that out '"The Exec~tive Directors are not expressing any opinion on be- half of the Governments they represent," just say they are ex- pressing no opinion on the merits of the proposal? SIR EDMUND HALL-PATCH: I would be perfectly happy with that. I think there should be a 2·,unanimous view on this busi- ness. I should be happier to have the other portion of the sentence inserted, but if there is any disagreement about it I think this discussion makes clear where we stand. As tar as we are concerned, we shall feel perfectly free to make any criticisms we like in the Economic and Social Council on the whole proposal. That is the one thing I want to make clear. And consequently, I would not like it to be thought tbat we were acting inconsistently by approving a report for trans- mittal to the Economic and Social Council and then perhaps getting on our high horse in the Economic and Social Council and saying it is a thoroughly bad one. THE CHAIRMAN: Yes. STRICTL CONFIDENTIAL 32 Mr. Kamat. MR. KAMAT: I should think, Mr. Chairman, that we are her in a dual capacity, and I don't think the other capacity, as representatives of government, can be forgotten. I must say I reel your original formula which was adopted some years ago · is the right one. It we are to express any view on the re- port, then it will be necessary to go through it pretty care- fully, and I don't think that vo~d be quite so suitable. THE CHAIRMAN: Let me make this suggestion. Put this addition to it: ''The attached Report has been prepared by the Management of the Bank: and, 1n authorizing its transmittal, the Executive Directors are not expressing any opinion on the policy issues discussed 1n Section ·r1 ot the Report." We will leave out "on behalf of the Governments, 11 and tha will cover it. As a matter or tact, when you talk: about the merits ot the proposal, there is no proposal at this time, and I think 1£ you said, "are not expressing any opinion on the policy issues discussed in Section II of the Report," that would cover both cases. Is that all right with everybody? MR. HOPPENOT: Yes. SIR EDMUND HALL-PATCH: Yes . Mr. Chairman, I would like to make a few suggestions if I may. This is a report prepare STRICTL CONFIDENTIAL by the Management, but I would, with all diffidence, like to submit a proposal which I think might clarity the report to some extent. THE CHAmMAN: All right. SIR EDMUND HALL-PATCH: At the end of Chapter I, it says the countries consulted accepted the idea 1n principle. I am not sure all qt them vould. Therefore, I would suggest the addition of the following words at the end of Chapter I might be suitable. The words I would suggest would be: " ••• and some of them doubt the soundness of the idea in principle. '' THE CHAIRMAN: Yes. SIR EDMOND HALL-PATCH: Then again, under 11 (a) 11 1n Chap- ter II, it seems to me that there have been recent discussions going on which might perhaps provide a way out or some of these difficulties to which you allude there. And in that chapter, 1n section (a), perhaps mention might be made of the following: "National development corporations to fulfil functions of a kind similar to those envisaged tor IFC can, in some cases, be set up 1n such a way and under such arrangements as to attract domestic and foreign capital." We have heard or this Indian Finance Corporation and ther may be others. We have got the Turkish Loan Corporation, and so on. STRICTL CONFIDENTIAL THE CHAIRMAN: You mean local? SIR EDMUND HALL-PATCH: Local; local. THE CHAIRMAN: Yes. SIR EDMUND HALL-PATCH: I just submit that f'or your con- sideration. TBE CHAIRMAN : Where would you put th.at in? sm EDMUND HALL-PATCH: At some suitable place in Sec- tion {a) or Chapter II. And finally, the last sentence or "( d) " in Chapter II -- THE CHAIRMAN: Mr. Demuth points out that .Section (a) is talking about private capital to finance IFC, so it ought to be somewhere else. This wouldn't have anything to do with that. This is a quest ion or whether or not you could get private capital to go into IFC like you have got private capi tal to go into CDFC. I am glad to put it in, but maybe it could be put 1n somewhere else it you would leave it to our discretion. SIR EDMUND HALL-PATCH: Certainly. Pinally, the last sentence or "( d)" in Chapter II. I -take it that that sentenc is not intended to ignore the rac~ that numbers are not the really useful index in this matter, and the real point is how much usable funds would be available. Perhaps that point might be covered by the addition or words something on these lines at the end: "Any such test would, however, have to have regard not STRICTL CONFIDENTIAL 35 only to the number of subscribing countries, but also to the extent to which the currencies subscribed would be likely to be useful f'or the purpose of' IFC." I would suggest something of. that sort. TBE CHAIRMAN: I think that is understood, but ve can pu it in. Are there any other suggestions? MR. KAMAT: May I raise one question? THE CHAIRMAN: Yes, Mr. Kamat. MR. KAMAT: At the end of Section I, we stated there is no support round for this corporation from the key. countries. I wonder if it could be elaborated a bit, as to the reasons lf}ly they are not in a position to support this. THE CHAIRMAN: I have had some difficulty in finding that out. (Laughter) MR. KAMAT: I am sure there must have been some discus- sions between the Management and the officials of .these coun- tries, in the course ot which something must have emerged. But if it is just left like that, if it is not .possible to put it tn the report, could it be possible to circulate it to the Executive Directors? THE CHAIRMAN: As I say, I have had discussions with representatives of several governments on this. I don't know that I .know all the reasons why they would not be interested today. I would have some doubt that these governments would STRICTL CONFIDENTIAL be willing to circulate all the reasons. I think we can get up a memorandum tor the Board gi vtng our impressions or some ot these reasons, but .before we do that I would like to talk to the governments involved. I don' ll1nk it ought to be in this report. MR. KAMAT: It it ia circulated to the Board I would be satisfied. THE CHAIRMAN: I would be glad to discuss it with the governments. Is there anything else on this report? MR. OVERBY: Mr. Chairman, I suspect there will be plenty of' opportunity to elaborate the views that are so succinctly expressed here. There are other forums and other places, I think, where these views can be elaborated. MR. GARNER: Won't that be discussed probably at the Economic and Social Council? MR. KAMAT : Yes, but the report 1a coming .from the Bank and the Banlc's Executive Directors should know what the posi- tion is. THE CHAIRMAN: I will be glad to g1 ve the Directors all the int"ormation I am allowed to. That is all I can say. MR. WARREN: Mr. Chairman. THE CHAIRMAN: Mr. Warren. MR. WARREN: I have only two small suggestions llh1ch the Management may wish to consider. They aren't very important. STRICTL CONFIDENTIAL 37 I wonder whether in the first paragraph, which summarizes 1n the last sentence what the Bank has done, the sentence might. be redrafted to reflect, perhaps, a little more closely the resolution which gave the job to the Bank, in case anyone in the UN should think you have done less than was asked of you 1n the resolution. I think that is poorly dratted. On page 2, you say, "Further studies have not altered the conclusion expressed in the original report." I just wonder whether 1t wouldn't be well to state the conclusion so the re.pore could read as a document vi thout reference to a previou document. THE CHAIRMAN: Excuse me. Will you repeat your last poin , please. MR. WARREN: The second point is on page 2, Mr. Black, the first paragraph of Chapter II, where you say that the fur- ther studies have not altered the conclusion expressed in the original- report. · I wonder whether that could be redrafted to say what the conclusion was, so you don't have to read this report with reference to the original one. THE CHAIRMAN: Well, I think we mention later on that the Management of the Bank thinks this institution 1s desi~able. That was the gist of the report, and we mention that later on in this report. MR. WARREN: I don't press this, Mr. Black, but it is just that when I read it the immediate question was, "what wa STRICTL CONFIDENTIAL 38 the conclusion?" I happened to know what the conclusion was, but other readers may not. THE CHAIRMAN: Isn•t that . in here later on? MR. DEMUTH: No. The first report was worded .in such a balanced fashion you can•t pick out any one sentence and say, "This 1s what it says. n We might quote the actual conclusion of that first report in a footnote to this report. MR. WARREN: I don't press that, but to the lay reader · the question immediately arises. MR. OVERBY: I submit this will probably not be read by the lay readers. This will be read by the interested parties. MR. DEMUTH: Mr. Warren, on the first point you made, we did f'udge a little bit what ve were asked to do in that first paragraph because we didn't really give them the whole de- tailed analysis that was asked for in those resolutions. That is one of the reasons we put the resolutions in back, 1n case anybody wanted to pick up the point. MR. WARREN: I imagined there had been some such diffi- culty. I wondered whether the fudging hadn't been too thoro • MR. DEMUTH: The only other alternative is to wr1 te a lengthy report on hypothetical questions, and I wonder whethe that would be a usef'ul thiDg to do at this point. THE CHAIRMAN: Well, I think one way you might say we haven't carried out the terms of the resolutions was that one of the things the Economic and Social Council wanted us to do 39 STRICTL CONFIDENTIAL was to go into a 1ot of detail in setting up a corporation. Now, we have never seen an:, sense in setting up a oorporation when you haven't got any money, and apendtng a lot of time giving charter and by-laws and duties, and so forth. That is one of the th1JlSS we haven't done. MR. WARREN: Mr. Black, there 1s certa1nly no difference 1n substance between us. I am just wondering, from the point of viev of drafting, if the person who drafted the resolution 1n the UN looks at your first paragraph -- whether the form of vords you have chosen 1s the best to serve your purpose. It you think it is, I certainly have no objection. THE . CHAIRMAN: .Well, ve said at the time, vhen this reso- lution was made, tbat we didn't think it advisable to go to a lot of trouble in setting up this corporation unless we round interest 1n getting capital. But we 1 11 take a look at this and we'll see what we can do. Is there anything else? (Wo response.)