RETUR:'} TO No. E-227 RESTRICTED REPO 67156 ", This report is restricted to use within the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT FOURTH MEETING OF THE CO~SULTATIVE COMMITTEE ON ECONOMIC DEVELOPMENT IN SOUTH AND SOUTHEAST ASIA MARCH 10-28, 1952 June 20, 1952 Economic Department .. Prepared By: A. Basch TABLE OF cnNTEtITS Page No. 1. The Role of the International Bank • .. . • 1 2. Future Oreanization for Continuing Consultations • 3 3. Technical Assistance • • • • .. " • • • • 3 4. Review of the Progress and Preparation of the Annual Report " .. .. . • • • • . 4 The 1952-53 Program .. • • • • • . . • 7 Changes in the Development Programs . . . • .. • . 8 Ceylon • • • • • • .. . • . • .. .. . .. . 9 India • • • • • • • .. . . • • • • • • 9 Pakistan . • • • .. .. • • .. .. • • .' . . 9 Malaya • • • .. • .. • • . .. ' • . • • • 10 Dependence on External Assistance. . • .. • • ., • 10 Fourth Beetin, of the Consultative Committee on opment in South and Sout east aia The l,[eeting of Officials of the participating goverrnnents was held in Karachi from Harch 10 to March 22 and the Ministerial f"ieeting from L1arch 24 to N"Jarch 28. The countries represented as full members of the Comr:Jittee were: Australia, Burma (for the first time), Canada, Ceylon, Cambodia, India, New Zealand, Pakistan, the United Kingdom, the United States, and Vietnam. Laos was unable to send a representative. At the 1Ieeting of Officials it was decided to extend an invi.tation to Hepal to join the ConSUltative Committee.. The Government of Nepal accented and its representatives attended a part of the Karachi meeting. The Governments of IndonEsia, the Philippines, and Thailand were represented by observers. It vras decided to send a standing invitation to the General Secretary of ECAFE to attend meetings that the Consultative Committee might consider a~:)Dropriate .• The main items on the agenda of both the Official and 1unisterial :;:>ieetin::s were: (1) Pre~aration of Annual Report (2) Role of International Bar~ (3) Future Organization for Continuing Consultations (h) Technical Assistance 1. The Role of the International Bank 1M • .. Phen this item was discussed at the l1eetinr: of Officials, the Banl< representative stated that the ?osition of the Bank had been explained at l / the last meeting of the ConSUltative Committee in Co1ombolJ February 1951,- and had been brought out in the proceedings of the meeting and in the cor- respondence between the President of the Bank and the U.K. Chancellor of the'Exchequer. He reviewed the operations of the Bailie during the inter- vening period in Pakistan, India, and Ceylon and pointed out that the President of the Bam{ had visited the countries of the region to get first- hand knowledge of their nrob1ems.. Thus the governments concerned had a good opportunity to discuss with him any problems arising out of their relations w:tth the Bank. Various questior.s were asked in the discussion, among them the question as to whether the Bank grants loans only for self- liquidating nrojects. The Bank representative pointed out a number of loans for projects which cannot be considered self-liquidating,. The term Itself- liquidating" needs clarification. Y See: IlNotes for the Re!,ort to the Board of Executive Directors by A. Basch on Colombo Conference!! -- Sec. Uemo No. 665, May 11, 1951. - 2 - The Government of Pakistan tabled a resolution in which it said that cases have occurred where, in spite of the fact that carefully pre- !?ared projects have been presented which have withstood the detailed technical scrutiny of the Bank experts, the Bank has been unable to assist those countries to the extent necessary. The reason is that the curren- cies required by the borrowers are not made available to the Bank by the member countr5es even against their 18% capital subscription. This applies to most European currencies and the result is that the actual availability of loa~s to borrowers is seriously limited., The usefulness of the Bank as an instrument to promote reconstruction and development is thus greatly reduced. The resolution stated that the following may be the best solutions to the problem: "(a) To persuade the countries to release 18% of their subscrtD- tions within the prescribed notice netiod and not to ~lace restrictions on its utilization for loan purposes. lI(b) The Ban1;;: itself may underta}~e to purchase the currencies required by under-developed countries and make them available without en- forcing the provisions of Section 3.02 of Loan Reeulation No. III. If necessary, the loan regulations should be modified. 1I '".ith regard to the release of 18~;;, the Bank representative referred to the Bank's efforts in this matter and quoted, among others, the respec- tive sections of the Sixth Annual ReDort (pp. f3 and 10). fa th regard to the second point--accepting the repayment in non-dollar currencies while lending dollars-the position of the Bank vms explained. The U.S. Delegate, supported by the U.K. Dele gate, moved that Pakistan's proposal 1':as a policy matter which could be decided only at the Annual Meeting of Governors and for which the Consultative Committee is not the proper forum. The meeting agreed with this view and the discussion of this problem ,vas not resumed at the j\:Jinisterial J~eeting. The discussion on the Role of the Banl< at the Ministerial 1iIeeting was not very extensive and followed the main lines of the discussion at the Meeting of Officials. Some questions were asked, especially with regard to the sale of Bank bonds held in its portfolio. It should be noted that both the representatives of India and Pakistan expressed their satisfaction with the operations of the Bank in their countries. The Bank representative was treated not as an observer but rather as a member and was invited to ex;;?ress his views on most of the questions and to work on the drafting lJarties ure:Jaring the various chapters of the Annual Report. - 3 - 2. Future Organization for Continuing Consul tationl? At the last meeting of the COIT~ttee in Colombo in February 1951, the U.K. Delegation brought up this subject, ex,ressing the view that it vrould be useful to have a small secretariat for the Consultative COIT~ittee. Apart frori. functioning as the clearing house of information, it could have the s?ecific functions of serving as secretariat of the meetings of the Consultative Committee and pre:9aring material for the Annual Re;.:>ort. The consensus of the Karachi IT,eetine; was that the setting up of a permanent secretariat was not necessary at present and that the questicm should be left open for consideration at a later meeting. The function of a secre- tariat for preparing a neeting and an annual report will aliyays be carried out by the country in whose territory the next meeting will be held. Be- cause the next meetine; will take place in India, the Indian Delegation ar- ranged to take over the preparation of this meeting.' At the last meeting of the Minister:Lal COmmittee, the Indian Finance Minister moved that a com- mittee of experts be apnointed to ::;repare the documentation of the Annual Report, beginninG' with sending out a questionnaire for this report. He proposed that the Conmittee consist of the fcllowing experts: Fred Benham U.K. Territories Vfilfred Malenbaum United States P .S.N. P:~asad India J. S. Reid New Zealand P.S. Lokanathan ECAFE A. Basch 3. Technical Assistance The Council of Technical Cooperation submitted to the Committee a re:port dealing 'with the first year of the opera.tion of the Council and the Bureau for Technical Assistance which was established in Colombo.· The amount spent by the members of the Bureau in the first year was around i, 400,000 which is substantially s than Vias expected. The funds vV'hieh were allocated by the various governments for the period of three years amount to ~ e million. This ~~ount, however, does not represent a central fund of liqUid resources but consists of a~ounts cor.~itted to be paid by the member gover~~ents on a bilateral basis. The re!,>ort of the Bureau shmvs that it was not difficult to nlace trainees in the numbers requested by various countries. The governments of Australia, Canada, India, New Zealand, and the United Kingdom have offered to take stated numbers of trainees for academic courses in universities or for practical training in industries and public utilities. It was agreed that in the future increased em~hasis should be placed on the provision of training facilities within the area, - 4- The provision of experts proved to be much more difficult. The ~rob!em has been aggravated under the existing conditions of increasing world-vnde demand for technologists.. The U.K. Government offered to provide services of firms of consultants which would be able to advise on s1)ecific projects or to supply a team of experts at short notice and on a wide varlet;:.' of subjects. The U.K. representative at the meeting in Karachi indicated that the U.K. Government would be greatly interested to have such consultants associated with the projects financed by the Bank. In the future more emphasis is to be ~laced on providing eqtupment not only for training purposes but also for use by technical experts. The term "equipmentll should be broadly interpreted. The Australian Government has decided to exnend a sUbstar.tial proportion of its contribution to the scheme on the Drovision of equipment. The qupstion of coordination of technical assistance provided under the Colombo scheme with the U.N. Technical Assistance, the U.S. Point IV Progr@m, and the operations of the various Specialized Agencies was discussed in detail. It was emphasized that simultaneous a1jolications to more than one aeency should te confined to cases of great urgency and the fact of a simultaneous a:;proach should be made clear in the apnlication. It was said, ho",<:ever, that it "vas for each goyernment to decide from what source it vdshed to seek aid in any particular case. '\'thile the fullest possible use should be mac1e of the fad Ii ties offered by the U.N., the S:;ecialized Agencies, and the U.S. Progra."D., it 1\'aS not supgested that assistance under the Colombo scheme should only be sought where other sources of aid had been exhausted. It was considered advisable for the various govermaents to set up machinery to insure proper coordination of re~uests for technical assistance. This was done already by India and Pakistan. 4. Revie'\'" of the Progress and ?re;.->aration of the Annual Reyort The most important item on the Agenda was the preparation of the Annual Report, which includes a review of the progress achieved since the first Colombo Plan was published in September 1950. In prenaring the Annual Reportllthe nrincinle established at the London meeting-in 1950 was maintained. This-principle is that each country is solely responsible for its ovm cha~ter, and the Dublication of the Report does not imply that all the countries taking part in the meeting have com- mi tted themselves to the endorserrent or a!),?roval of all the se:;:>arate plans. Although the principle was maintained that no country should criticize a pro- gram of another country: a very broad exchange of views took place at the Karachi meetinc in the preliminary sessions and in the work of the drafting parties. As a result of thorou~h questioning, various changes were made in the country chapters. Hovvever, the estimates, the figures, and the programs remained more or less as presented by the countries themselves. The Annual 1/ Re10rt of the Consultative Committee on Economic Development in South - and Southeast Asia - Fourth Meetinc: at Karachi, Harch 1952 (84 pages). - 5- Report consists, thus, of two different parts. The sections dealing with the develoDment programs of the various countries remain the responsibili- ties of these countries. The Committee as such prepared the general chap- ters of the Report. It may be expected that as the program progresses fu~ther, more and more consultation will develop even on the preparation and presentation of the programs of the individual countries. The Finance Minister of India, Sir Chintaman Deshmukh, suggested that a thought be give~ to the possible integration and coordination of the Indian and Pakis- tani programs. As an example he indicated that, for inst~ce, Pakistan might export fertilizers from West Pakistan to Central India; and India, from East Ir~ia to East Pakistan. He also suggested a meeting of the Indian and Pakistani Planning Commissions. In ?resenting the Renort it was considered useful to give a defini- tion of the Colombo Plan. The press communique says: "The Colombo Plan is a cooperative plan to enable members to hel~ one another through bilateral arrangements for assistance both capital and tech~ical. Its objective is to raise the standard of living by accelerating the pace and e).."tending the scope of econOlllic development in the countries of South and Southeast ASia, with s?ecial em- nhasis on the ~roduction of food. If The needs of the area are a~proached in a comprehensive and coopera- tive manner, but the Colombo Plan is not a centrally planned and directed blueprint for the development of the area. Develo?ment should proceed on the basis of individual ~rograms. In reviewing the progress so far achieved under the Plan, it became clear that the original programs required adjustment because the world economic situation had changed and because member countries had felt it necessary to reconsider the scope and content of their urograms. It was recognized that such changes were a natural, indeed an essential, element of realistic planning, and that any estimates of a six-year period would reqUire frequent revision. It WI;l.S found extremely difficult to estimate the cost of the programs for the next five years and especially to pre,!)are any estimates for the balance of payments in the next five years. The main emphasis was tllus nlaced on presenting figures as dependable as lJossible for the year 1952-53. Where figures for a six-year program are published, they should be considered more as an indication of the magnitudes involved rather than of a forecast of the real exnenditure to be expected •. Reviewine the progress achieved since the Colombo Plan Report 'was published, the Re~ort of the Committee states thatit is clear that the Plan "had got off to a good start." In 1950-51, the terms of trade of countries in South and Southeast Asia i:proved, export earninfs increased, and instead of an expected balance of ~ayments deficit the countries achieved substan- tial balance of payments surpluses which were carried over in the first Coloffibo Plan year. Through various fiscal measures they were able to ob- tain budget surpluses and to finance not only current expenditures but sub- stantial development expenditures as well. Expenditures for development -6- were stepped up in 1950-51 and they were further increased when the first year of the Colombo Plan Program, 1951-52, lITas pre}!are.d. The increased rate of investment can be seen from the following table which shows eX- penditure by public authorities on development in the three years, 1950-51 to 1952-53. (In millions of dollars) Average Yearly Ex- 1950-51 1951-52 1952-53 penditure in the Actual Rev.Est. Est. Colombo Plan India 5491/ 717 860 643 Pakistan 62- 322 331 110 Ceylon 48 106 123 47 .. 5 U.K. Territories 36 50 67 50 -- Total 695 1,195 1,381 850.5 1/ No figure on Pakistan expenditure in 1950-51 is given in - the Report. The amount of '>62 is based on information available here. The yearly average of public expenditure on development in the Colombo Plan Was around i~850 million. An amount of nearly~700 million was spent in 1950-51. The estimate for the first year of the Colombo Plan is nearly ~~;11l200 million; and for 1952-53, ,~1,381 million which would be 60% more than the yearly average for the six years of the Colombo Plan. The estimated expenditure in 1952-53 for India and for the U.K. territories are one third higher than the six-year average. Pakistan's expenditures are three times as high and those of Ceylon 2.6 times as high as the estimated six-year average. The outlay of~700 !?lillion on development in the public sector in the year precedinc the first Colombo Plan year was fj.nanced 1'r:i~ th -practically no foreien assistance. liloreover, during this period all countries increased their foreign exchange assets, in s~ite of the substantial step-up of the development prograo. Financinc was available for the development program in 1951-52 and substantial foreign financial assistance ,'ras obtained. According to the Colombo Plan program, the ayera::e yearly external assistance needed for the implementation of the pro£ram was estimated at .'>325 million in addition to the release of sterling balances. This does not include the U.K. territories in the area for which the U.K. committed foreign assistance to the amount of i, 60 million pa68 million). The total external assistance, related only to India, Pakistan, and Ceylon, granted or committed during the first year of the program amounts rougllly to $338 million, or more than the yearly -7- estimated assistance required. Of course, the program of these trIee coun- tries was ste??ed up by nearly ,)350 rnil1ion. Of the total external assist- ance, the U.S. provided about 7h%; the Commomvealth countrj_es--Canada, Australta" New Zealand--14%; and the loans newly granted or disbursed by the Bank provided the remaining 12%., The total external assistance granted to India durine this :')ertod amounts to about~280 mtllion, that to Pakistan to about ~j54 million. It should be mentioned, however, that some of the . funds authorized or allocated vall not be spent bv the end of June 1952 and ~ there will be 11 carry-over either in foreign exchange or in local currency counter~art for the financing of the 1952-53 program. The 1952 ...5'3 Program The external assistance estimated necessary, in addition to IBRD loans already granted or under negotiation, for the Colombo Plan for the three countries--Ceylon, In1ia, Pakistan--is about '~420 million which compares vath the total r:roposed investr.:ent in the public sector of about::il, 3l!t mil- lion. Pakistan estimates that it vrill need assistance of~120 million in addi tion to about :'~24 million to 1:E financed by dra11'rings on the IBRD loans. India's balance of payments deficit in the second year is estimated at Rs. 2,000 million Oh20 million). Around Rs. 750 million ( million) may be available by dra1l'ring on the sterling balances, and about S8.4 million will be disbursed from the IBRD loans. This will leave a ga9 of about c~250 million., Ceylon's ciefici t is estimated at Rs. 350 million (,',73.5 million) of which Rs., 100 million would be financed by d ra'Wing dOVffi the sterling balances. The rest of the deficit, about ,pSO million, is 8X1)ected to be met by external assistance, should the develo::?f.lent 9roCrar,l be carried out in full., Against the esttmated amount of the needed external assistance of about ,;:)420 million after deductinc the c rarnngs on the IBRD loans, the fol- lovdnc amounts are believed to be available at present in the form of grants. Dollars . :tIillion Canada - as in the first year 25 Ney; Zealand - as 'L1 the first year 2.1 Australia - if the second year contribution 19.6 is equal to that of the first year (this has not been decided yet) Uni ted State s 9&-lCO Thus the total amount ()f €fants at nresent will be around:a45 million, leaving an uncovered deficit of about "p275 million. It would seem that the external financing of the program is not assured for the second year. How- ever, it is not certain to what extent the projects have been pre?ared in detail nor to what extent the programs vdll be implemented. Furthermore, because of the economic recession prevailing now in the area, or for other reasons, the balance of payments deficit may be reduced~, For instance, - 8 - India has already l()1,"1ered, by one half million tons, the target for food- crain imports; and imports of ra'l: cotton will certainly remain below the level of 1951-52. Finally, there will be a carry~over either in the form of foreign assets such as may be the case in Pakistan and Ceylon, or in the form of local currency counterpart as may be the case in India, whic~ will help to finance the second year of the program. Taking together the total grants and the e~eeted disbursements of IBRD loans, the external assistance for the second year of the program so far available is about.:llBO million com:?ared to ·~337.8 million in the first year. Thus, the foreign assistance for the second year remains substantially below the yearly average of ~.l32S million and re,resents less than 14% of the total :?roposed investment by the three countries. The difference is mainly due to the U.S. Yiheat Loan of ::?190 million granted to India in 1951-52. United States assistance equals 55.5% of the total (it was 74% in 1951-52); that of the Commonwealth countries, 26.2%; and IURD loan disburse- ments would represent 18.3%. ' At the Karachi seeting it became evident that the role of th~ United States in the Colombo Plan prozram was becoming stronger. The U.S. Delegation played a much more important role in Karachi than it did in Colombo. It was recocnized by the member countries that theyvd11 depend to a substantial degree on the United States for the full implementation of their future programs. The U.K. contributi on consists of three items: (a) b 60 millicn grants and loans committed to the U.K. ter- ritories in the area. (b) ];,' 250 million sterling to be released over the period of the Colombo Plan. The Colombo Plan countries are aware of the great im- portance of g.ettin~ the sterling releases for the financing of their proe:rams and the balance of ;,:>ayments deficit, and are somewhat apprehensiva as to what might happen to their programs if they should not be able to draw on their sterling balances. (c) The supply of capital goods., The U.K. Delegation prop- erly em:)hasized the importance of the U.. IC. supDly of capital goods to the area and re21eated that the U.K. v:rill endeavour to maintain the present high volu.'lle of capital goods export to the Colombo Plan countries. £hange~ in the revelopment Programs Nearly all the programs as they were prepared for the Report in September 1950 needed to be revised because the time for preparation had been too short. Resources had to be re-assessed and targets newly estimated, all of which led to substantial changes in the programs of some countries. Some chan€9s are, however, of a bookkeeping nature because eXpenditures on development, which have been met from current revenue, have been separated now and have been added to the previous estimates of development outlay. - 9 - CeYlon --:iil._ The revised six-year program involves estimated costs of Rs. 3,200 miJ.lion ($672 million) as against Rs·. 1,359 million (~~285 million) in the Colombo Plan. An important rural development scheme was added to deal with the ::;>roblem of under-employrient in the villages. Uuch greater emphasis is given to education and health programs as well as to the expansion in the ,?ower and transportation fields. Comoared to Rs. 233 million (,~48 million) spent on development in the public sector in 1950-51, the estimated expendi- ture for 1952-53 is Rs. 583 million (:~123 million)., This seems to be rather too optimistic an assu.rnption as to the investment and financing possibilities for thenext five years. The program of Ceylon is also substantially larger than the program considered as aopropriate and reasonable by the overall Bank Mission to Ceylon. India The Six-year Colombo Plan program has been revised in the light of more detailed investigation carried out by the Planning Commission in con- nection with the preparation of the Five Year Plan. India ;,till continue to operate on the basis of the Five Year Plan but has adjusted its overall figures to the Six-year Colombo Plan l1rograms. The total for six years is Rs. 23,337 million ($4,901 willion) as cOID?ared to Rs. 18,395 million ($),859 million) in the Cclombo Plan. HryffeVer, an amount of Rs. 3,600 mil- lion (~';756 million) depends on whether adequate foreign assistance is avail- able and, therefore, this amount has not been allocated yet. If this ~~ is deducted from the total, the new total 'will be only Rs. 1,342 million ($·282 million) more than was the program in the Colombo Plan Re,ort. The most important change is the greater emDhasis placed on irrigation and power~ The new target for the production of foodgrain is 7.2 million tons compared to 3 million tons in the original program. Conversely, less emphasis is 9laced on the expansion of other agricultural production. A substantially smaller target has been established for the increase of production of oil- seeds. Another major reVlSlon is in process of being finalized. As a re- sult of the Indo-American Technical Cooperation Agreement, there Will be a material increase in the aericultural extension work. It is expected that UP to the end of June 1957 the cost of this program may exceed $500 million, of which about 70% are costs above those provided for in the Plan. Pakistan The Report states that the Pakistan six-year program was hurriedly prepared vnthin a period of just three months, and a subsequent examination has revealed omissions and inadequacies. A Planning Commission and a number of sub-commissions were set up to review the resources available to prepare detailed schemes coverine the entire range of development needs, and to co- ordinate all develonment schemes and reco~rnend priorities. This task has not yet been completed and a revised assessment of total requirements over the six years is not at present possible. In the meantLrne the Government has established a two-year priority program placing greater emphasis on - 10 - development of industries. The development expenditures in the public sec- tor in the first two years of the Colombo Plan are estimated at Rs. 2,177.5 million ($653 million) as compared to Rs.2,200 million ($660 million) esti- mated as the six-year expenditure in the public sector in the Colombo Plan. These figures indicate the extent of the revision of the Pakistan program. . 1\~alaya The program of the Federation of Malaya has also been changed in vie",; of the emergency. It was necessary to resettle some 400,000 squatters. But some projects undertaken to cope with the emergency such as improven:ent and extension of railway facilities, air?orts, and telecommunications will be of lasting benefit. It is hooed to complete the first half of the elec- . tricity program by 1957. _........----- - External Assistance Degendence on . ' ---'" As mentioned already, the Colombo Plan prograITl started its first year at a higher rate of investment than ,vas originally contemplated, chiefly because of the improved external and internal financial situation throughout the area. It is probable that the rate of investment in 1952-53 ~Qll be at about the first-year level. In spite of the increased rate of investment, the Report of the Co~~ittee points out that because of the nature of the various projects no spectacular results should be e~ected in the next year or two. The full benefits would anpear only in 1957 or thereafter. The question arises as to how the investment needs will be met in the third year and the following years. The Report of the Committee does not intend to anSHer tp~s question except by saying: IIThis 'viII depend on a number of factors. Foremost is the con- tinued determination of the countries to pursue their develop- ment objectives and to utilize their resources effectively to that end. The investment programmes must be planned so that they do give promise of production increase in excess of popu- lation increase and take full advantage of available technical assistance and the potentialities of private as well as public capital. . Of great importance too is the continuation of the cooperative attitude of mutual assistance implicit in the plan, and in particular the continued llQllingness to provide the tech- nical and capital assistance needed. lt • - 11 - Without external as~~stance the ~rogram could not be carried out to the extent contemnlated .. -' The need of external assistance will be rreater if the rehabilitation programs of Burma and perhaps Vietnam are taken into account.. W'hile dependence on foreign assistance might be greater than in the first year of the Colombo Plan, there is hardly the possibility of giving the countries any assurance that such assistance will be available. There is no doubt that the Colombo Plan is being taken seriously by the de ... vel oping countries and by all members of the Colombo Plan Committee outside the area. In this connection, the follmving sentence of the Committee Re- port should be quoted: "Every effort is being made to see that government proj- ects which are economically justifiable and are appro- priate for public finance are not impeded because of lack of capital or of technical competence." Many projects were started and a great many are about to Ce begun. Should the resources needed for the implementation not be available, some of the projects will perhaps be slowed dovm and spaced over a longer period of time .. Should the situation become even worse, some countries might be confronted with the 9roblem of discontinuing some of the projects or providing the means for the iIllj)lementation by cutting imports and by deficit financing. In a dilemma as to whether to carryon development even at a slower pace or to discontinue some of the ~rojects, countries would probably resort to an un- orthodox way of financing. 11 See our paper: The Colombo Plan, January 23, 1951, No. E-13Sb.