/6/ . • • HOLD FOR RELEASE HOID FOR RELEASE HOID FOll HEraASE IHTERNATIOUAL BANK FOR RECONSTRUCTION AND DEVELOP}1ENT Washington TO BE 1tELEASED AT APPROXI11.4.TELY 8:00 P.E, EST, TUESDAY, JUNE 1, 1948 FOR THE PRESS Press Release No. 101 Address by John J. HcCloy, President of the International Bank for Reconstruction and Development, before the Foreign Policv Association, Cincinnati, Ohi,Q,,,.,,_~sday, June 1 1 19.4.8 The question I am frequently asked is wl1ether I believe the European Recovery Prograrn w-111 1-rork; that is work in the sense that. at the end of the four.:. year period Eu.rope will be able to fend for itself without further appeals for similar aid from this country. Though I am in no better positio.:i to answer this question than many others, and indeed not as well equip1 )ed as many, it is probably a fair question to ask of a.11.yone who is a responsible part of an internc. tional institution devoted to the objectives nf' world recovery such as the Inter11r:tional Bank .. • I have seen figures which pu....-po:-t to prove that the program will sue ceed and those which pur9ort to prove t~t the sums are grossly inadequate. Personally, I do not believe either conclusion QC be established by figures Ol" s·tc.tin tics. On other occasions I have emphasizecl. tl.\if ~ l y a:rriazing strideo which Euro~)e has already made toward her own relm.biJ'.it1',tion since the close of t.he war. These represent such a significant advance fror.i the rubble of Europe as j:t W8.S in 1945 that one is encouraged to believe that man's indefatigable urge to :t"epa.ir his fortun~s after disast~r, coupled with some ext~rnal aid, does bring very 3reat and very definite results. If one could feel that 1tlth continued aid the progress could be as great in the next three years as it has been in the past tlu~ee the European future would look very healthy. Judged in terms of output and phys:.tcal capacity, today's figures show that Western European :nations have, as a whole, approached if' not '?Xceeded their pre-war levels. They have done thia in the face of some very severe handicaps; a much disturbed political condition, bad crops and an extremely deep cut in Ge1'11'1an production which prior to the war was the hub of . European economy., indeed, far too much so considering the warped purposes to ~1hich Germany applied her economic position. With the dirainution of Ger:r::a.n production the levels of other European countriea will probably have to be higher than tb.ey were before the war. I venture to suggest, however, that with production i11- creo.sing in Western Europe, in ~astern Ewope, in the United States, and else- whe-~e throughout the world the production levels which Europe can reuch and support with the help of the European Recovery Program are not so vaf.ltJ.y above her present levels as sometimes we are pror.re to think. I do not mean by this to imply that Europe is close to her maximum production firrure for a.11 time. For to survive she must, like all the rest, of us, expand a.nd imprrejudj_ces, in spite of the quite malicious ,ropaga.nda regarding the motives of the United States at home and abroad, in spite of all our o,m shortcomings, the United Stat<~s remains today a mighty if somewhat dishevelled leader. The role of world leadership is not a he.ppy one, particularly in an elect:i.on year. It e~cts a certain behavior of the one who occupies it. In t!iis pej;>- turbed uorld of infla.tion, restrictive tr~de regulations, unsound govermnent financing and fiscal systems it is e:ctre~ely important that the United 1tates with her predominant influence and leadership in all forms of international ~id should continue to furnish an exa.t1ple of righteous economic conduct herself. The United States ·i:,oday does nothing which is not reflected in the chancelleries of every country. If our bud3ets become unbalanced with what. force do we speak to the world whose deficit financing we frequently deplore. If we reb1..1ff inter- • national trade with what persuasion do we urge a revival of intra-European trade or applaud Hr. Churchill's crusade in support of a European economic and political union. The social, economic and political behav:ior of t!1e United States over the next four years will as r~uch determine the course of the' European recovery as the billions Congresa will or can appropriate, and here again we have one of the Breat imponderables of which figures today cannot give us any reliable gauge. There was a time when people felt that all the world's economic ills were to be cured throush a wise but beneficent distribution of loons on the pa.rt of the International Bank. Very forttinateJ~r for the Bank and also the uorld another agency has been created which in public acn,templa.tion seems to occupy this hope- ful role. This is the European Cooper•ation .Administration. It has and will have ver.J large sums available to it, cums which fe.r exceed any of those which are presently available to the International Ba.11J( and they a.re to be devoted only to the recover~, of a relativeiy small even though important sectiol'l of the world. It is naturalljr asked what role the International Barik intends to fill during the operatio.1.l or the Zuropean Recovery Program. First, let me tell you a little·so:mething about how the Bank is organized, how it gets its money, and what its zeneral policies and objectives c".re. For when these are knot-m it ie a rather simple ma-tter to outline uhat it can do in connection with the 1'uropean Recovery Program. The International BariJr is an institution whose stockholders consist at present of the members of 46 different countries. Its authorized capital is ten billion dollars and its subscribed capital to date is something over eight billion dollars. The capital subscrip.. • tion of each of' the countries is divided into three categories, The first z percent must be paid by all countries in gold or in dollars. The next 18 percent may be paid at the option of the country involved in its own currency, but it can only be used for lending purposes with the consent of the subscribing country. - 4 - The remaining 80 percent or the capital subscription including that of the United States is callable only if it should ever be necessary to meet obligations of the l Bank itself~ This call must be met in whatever turrency it is necessRry to obtain in order to make good on the Bank's own obligations. It can never be used for lending purposestt Thus there is a great world guarantee fund behind the obliga- tions of the Bank, and in addition there are, of course, as further security what- ever reserves and capital the Bank may accumulate in the course of its operations. Roughly speaking the Bank has had available te, it for lending purposes around one billion dollars. This is made up of the 2 percent capital subscription of all the countr:tes plus the 18 percent capital subscription of the United States, this amoi.111·· having been made available by the consent of the United States for lending pu:r·poses plus 250 million dollars which the Bank itself raised through the sele of ~ts securities, There have been minor instances of other countries making available part of their 18 percent for lending.purposes put in the main it is the capital subscription of the United States Government which has thus far supplied the working capital of the Bank. It is obvious that if the Bank is to make a real impression on the recovery needs of the world it must receive most of its money from other than capital sub- scriptions. This it d9es through the sale of its bonds in the various capital markets of the world. Thus far the Bank has successrui.Ly sold as I have indicated 250 million dollars of its bonds. It has lent or committed to lend 513 millions· of doliars and it has presently available some 470 million dollars for lending purposes without further borrowing. In spite of the fact that there are numerous •• sums and guarantees behind the Bankis obligations the Bank still has to compete with the high grade obligations of governments, and industries, public and private, for the favor of the capital market. It is bound by its Charter to follow certain standards. Its loans must be productive loans. They must be for things which definitely benefit or improve the economy of the countries involved; there must be a reason- able prospect of repayment and the Bank must be satisfied that the proceeds of the loans are used for the purposes for which the loans were approved. As the sources we have for making loans are dependent upon the confidence of investors, that is to say private investors., so the Bank is designed to stimulate the flow of private investment into productive purposes throughout the world. It is the hope of its management, as well as its definite objective, to have the Bank serve as a bridge between the flow of government and private capital. As I read the Charter, as well as the committee reports and debates in the Congress and the other legislative assemblies of the members which adopted the Charter, the Bank justifies its full existence precisely at the moment when the world (in part at least due to the Bank I s efforts) is no longer i ..n need of its services. As the post-war world developed, due to many causes which it is not necessary to recount tonight, enormous balance of payments deficits arose between the countries in Western Europe and the United States and between each other, These deficits were so great that no institution constituted as the International Bank could possibly cope with them and have any funds available for reconstruction and development either in Europe or in oth~r parts of the world. These deficits were symptoms of fundamental economic disordera and represented trends with which the • Bank was never designed to deal, at least single handedly, If the B~nk is to main- tain the confidence of its investors, to do its duty tc~ard its stockholders, it ie necessary that its ens:r·gies and ::esources sho'Ul.d be devoted to the creation or main tenance of fairly definite prodqctive projects whose output, in whatever form, is somethi.ng· of' which the partioiµar oountry or the world stands in economic need. r • • ~ - 5 - With the advent or the European Recovery Program large additional sums were made available which, if providently used, should subst£ntially check if not alter some of the forces which were tending to create this economic imbalance in the world. In large part its funds are made available for the supply of food, fuel, raw materials, for the general rehabilitation of Western European economy. It will also have some funds available for the supply of capital goods and reconstruction items to Western Europe. It is in this latter field that the International Bank wishes particularly to assist and supplement the efforts of the European Recovery Prograin. The Bank, in the closest cooperation with the European Recovery Program, will continue to search for economically productive projects, which meet its standards and the various countries needs. The Charter of the Bank requires that its fur1ds be equitably dist:.ributed between reconstruction and development. Western Europe is but one part of the world which the Bank serves. There are other areas in which reconstruction is in great n~ed of financing and there are other areas, very large areas, South America, Africa, and the Far and MidAle East, which are in need of development fina~cing. The Bank cannot finance all of the worthy projects that exist throughout the world. Indeed there is no single institution or group of insti tutivi1s-th&t ovuld possibly ~ope with such a problem. But the Bank can select throughout the various areas projects which give the greatest promis6 of wide economic value. How much of its •• funds will be made available for Western Europe it 1.s impossible to say with any degree of exactness. It depends upon many thinfs but the Bank d~ee not intend to withdraw from Western Europe during the course of the European program. The more it can do the greater will be the relief to the .American taxpayer. Moreover, I am not unmindful of the fact that the e.xtent to which the European Cooperation Administration makes grants and ev~n loane to Western Europe of sums to be us~d for productive working capital and machinery, by that much are the loans which the International Bank may make to Western Europe better secured, We have to date made five loans. Four of these were reconstruction loans in Europe. They were made to France, The Netherlands, Denmark, and Luxembourg. Another was made to Chile for development purposes. To France many items of capital equipment were furnished, including 100 new locomotive, for the French National Railways, bulldozers and other types of earth moving equipment for the work on the Genesiat Dam in the Rhone Valley south of the city of Lyon. Fifty new o~rgo ships were pleced in the service of the Dutch merchant marine as a result of the Bank's lean. Agricultural machinery was made available for Denmark; L~embourg is re- ceiving new steel mill equipment, mainly from Pittsburgh. Many machine tools and other equipment are being purchased in Cincinnati out of funds received from the proceeds of loans frQm the International Bank. There is no limitation placod upon where the proceeds of the loan,J may pe spent and our records show that the proceeds are, in fact, spent in various parts of the world as well as in the United States. To South .America, for example, we can trace something ~rol,llld 50 million dollars of the 300 million dollars which have thus far been drawn down on the Bankts loans. •• l shall leave any further questions regarding the organization of the Bank or the types of loans it has made, or its relation to the ;-.uropeat\ program to the question period but speaking or South America I would lik' , to say a word or two about a trip to South America from which I have recently returned. A small group rrom the Bank visited Colombia, Ecuador, Peru, Chile, Argent~na, Brazil, Urugv.ay, Venezuela and we spoke with representative~ of a number of other Latin American countries including Paraguay and Bolivia while we were on the way. l r •• . - 6 It is difficult, if not impossible, to generru.ize abaut n Continent, ~nd one of tho chief impressions I received from our trip wri.s the manner in which ono country v~riod from another. If one ctn dare to generalize it would be to say that o.11 of the c:JuntriGs that wo visited sc emcd particularly alert and sensitive 1 to the needs of tho-:1'.' uconomic. devolopmont. With ull its great ndvancos the Continent as a whole is still l.:~rgoly undovulopod. There is a certain imp~.tionce to get on with the de-relopmont for here, unlike tho dovolopments which took pl:1ce in the North 1\moric[).n Continent, steps have to be trueen under the intimdc know- ledge and pressure of whtt.t is going on clsm~rharc in the world. It is pion~oring with a r.:tdi::) o.nd a motion picture nt hru1d. The desire to telescope the period ot dcrvdloprnont is apparent and prrtisewortby. It may, a...vid probably ·will., produce economic distortions but the condition remains. I don•t want to give you a travologD-e of South Ameri0a but economically specking my trip confirmed the f a.ot which I boliove most of us hc.1.v;e that hore is an area both for its ovm welfare a..11.d the weJ.f are of the world should. be brought as rapidly as prr.cticablo to fuller productivity. It is encouraging to sew so many men in tho various cuuntrics of South .A.meric,,. conscious of the cc0no1:1ic and soci€'.l forces thc.t ar(: at work in t.hoir respective countries, end the eo.rnestness ,·Iith ,nhich thcJr approach thoir problems. The problems-arc serious md complux but with them Jl.l th0re ,..re many -...:r:iorgi0s beinr; F'.pplit.,d tiJ t. hair solutiGn. We found th2t those responsible were interested in mc>ny dif:f.oront types of •- produ.ct:i.ve ~ntorprises but ccrtri.inl:y in the m:un tho;.. wc:re not l:.tborin;:; uno.c;r arry fant.~stic d\.,vclopmont sch(;mcs. Of.i'icL:i.ls nnd othors v:0re consid0ring scriounJ.y Y.ihnt needed to be d0nc in tho Y!::t;f t.J-i: sound agriculturn.l impr0vomvnt, port c:io-.rclop- mont, c01:1r.mnication ~;7stoms, pov~r f~"'j.oct.s, .:md the lih:c. In s.Jmc cf the gov8rn.- ments of our mor.1bor cvuntri(.:S i~ \ho StJuth ./'.m~ri0;i..n Continent sorious c·,msidore.tion was being given to sclio.mcs uf immit:ration rod scttlcm.0nt whc::-s . ) object vr.Juld bo to receive into their c'.Juntri 0s from the over I..1..Jpt1L'1tod nrcns 0f the! Earopcun CJntincnt immigrc:::nts ::.r..d. si..:ttlcrs of t:i.10 type ,;;ho c,:,uld. bo ro.Lioci upon t.o cr~rve out their hor.10s md thvir Dpp;.rrtun1.tius in nuw lr,nds. SchGmes of this :::0:ct in those days require ct1ref't..::.l orop~rntL)n '."nu. orglmizr-.ti:m l'!.nd. they clsc rcquir0 some fin:mcing. The Horth itri~Gric-i,n Com,incnt could clnd did rely \:;n the ne.turcl flow ·Jf ocon0mic f(Jr·'Jus to pr:)vidc settlers. Those who came: to CincinnEt:i. after 18L.8 c2.me largely under thdr tnm power. But todr-.y d'i.sl'.'Jct·.ti(ms arising fr-01~1 the war m d ,Jtl-wr c0nd:Ltions 1:wke it nucesse.ry and desirt'.~bh. to c..ssist ·those forces. It is a field in which much crm r..nd should be d~mo, in my judgmont, t.nu is ·:me in which the Intcrn~tionc.l Bank with the cooporc~tion 0f the oountries involVvd mi:1y be able to holp. 1-. discussi.:m o"f this subject marked one :')f tho m,.Jst interesting phc:i..sos of vur trip • .."...nothor _phc:.sB of our South Ar:u.:.ricnn trip br:)ught to light the grent desire, of r.10st of those: countries r.t lcf:.st, for toch!"'J.cril assist.rmcc t.nd advice in 1 c~mnection -vd.th their dcvclopmunt. The Bank hns cert[.!..in fncilitios which it can mclw rwai.lnblo in this cvnnocticm c1.nd it has r.umy c .:;ntn.cts v;hich wo r.:ro prcpnred to utiltzo on beh.~ f of the.: mombur c.:.:iuntrios should th0y so J.oslro. It W(~~ oncc,ur:1.ging r.J.so tc) r:tout -with mt.ny who rGnlizc.:d the limi tcd .t\,jL;, thct:. • lending cnn pluy in th0 duvolopmunt cf n Con.tirr1.:nt. ·cortninly in raust, if not. in nll., countries we visited tho grc~tost int0rust w2.s shovm the: discussion of st,.::ps Lha.t might bo tc:11-cc;:n to 1nduco thu fl,)H Jf crpi kl gcnurctlly int,) th1.. ,1rco.. No 1 Continent c:-.n be dovdop0d entirely by debt, It t..rtkcs vui1turo c0pito.l as well ns investment cnpital to r.w.kc n countr1ne borrc-w:Lr.g. &rly in its crrc(:r it hos 10.c. t v.d. tl·: 2. vory welco~e:: coepetitor in teres of t.he Europuan Co.:.iperr'.tion : ..dninistrdi . n. T:10rc arc mo..n:.r problor.m bGfore it but I think it has eJ.ro.:.ay affordud to t.he w.:;:cld an example of an. intern::i..tion,::.l institution whi.ch ccm t:pply itsGli' ,Jbjcctiv0l~r to thD solution of sJ~e of its rn0,;1bern :problc:r.w. It h.!'.:3 day to dc1y tr.s!·:s tc pi;:-rf . ~nn aacl I think if you visitoci tho ;Jffices ·:J.f the Br.~·d~ y.)u 1·.r~;uld find little to Ji.sti.~1g 1ish 1 it from tho ir.torior ·:,f nther bc:~1ks or insurri.nco conp.:m:...os, Jr ont{J1"pr5.S0Ei •.v::.ich 1 you w.:rnld bu npt to visit i:n. tho dty of C::.ncinnn.ti, I think ~pu ~.v·_,,_1ld be. ;)t::rtic- uL:trly impressed vrith the s-:.aff of the Bnnk t ... '1<1 its tlirc..ct.·rs. Tb.::;r r:.rc ,.bjccti,to, experh.ncod c1nd kn0wlcd.gG,1..blc about c.c!'.mor.u.c .:'..nd finm ci ~l :m.::ttcrf:'. Their loy'11- tios £'.re to th,-,1 B[l.r..l( r:nl it is ro.re:ly t:1r•.t R pun.J.y nation:·l r<;.Lnt ::f ·v.i.(iW is ex-iJre~sed in connection wi·t,h tli1,.; l'l2r>y. :tntern.:::.ti.o:it.l tr.:nsp.cti )ns ,,::LtL w'i·uch th0y 1 have to de.:i..l. You 1·:ho arc h,..;re aro p~·ai.-- ~...urr.:;st.~d in the opor~ti~m :;f foroign rolcn.ticns. I d(,;. n:t G(::~:n t,:, ~G.crl'b$ to<.; r::ueh to whc.t the l1r•:1:~ nr;:- c .ntri"i:Jdo t0 thG solution ·Jf t;lis vr,Jr~dt s ills but I do bE::lievc:. it hn.s :•lr(;~.;.dy ,:ff ..)1"(0d on exo.r.iple of int~)rnati Jnal dor:.ling wbich er:.bodios re::--:.1 hope .f.·:,r th·.: futur0. r, •• I~ J