STRICTLY ONFIDENTIAL 1 Criaft/Renzi l INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT 2 3 FINANCIAL POLICY COMMITTEE 4 5 6 1 8 9 10 11 Board Room World Bank Building I 12 Washington, D. C. Tuesday, February 11, 1961.i- 13 V' The meeting was convened at 10: 30 o'clock a.m., 14 SR Mr. George D. Woods presiding. 15 16 17 18 19 20 21 22 23 24 25 ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTL~ CONFIDENTIAL 2 l I NDE X 2 3 Discussion of paper on Agriculture (FPC64-l) . • • . 3 4 5 6 7 8 9 10 11 12 13 FR 14 15 16 17 18 19 20 21 22 23 24 25 ACE-FEDERAL REPORTERS, INC. 261 CONSTITU'flON AVE., N.W. WASHINGTON, D. C. ' STRICTLY ONFIDENTIAL 3 l PROCEEDINGS 2 THE CHAIRMAN: Several Directors spoke last week 3 and several have indicated their desire to speak today. I 4 will start by calling on Mr. Abramowski. 5 MR. ABRAMOWSKI: Mr. Chairman, like the previous s speakers I also welcome the initiative outlined in the 7 Agriculture Paper, to broaden Bank and IDA activities in the s agricultural field and thus pay attention to the evident 9 requirements of the member countries. The Bank and IDA have i 10 the past devoted considerable sources to promoting improvement 11 in agriculture. I think there is no doubt that the Bank and 12 IDA, within the scope of their possibilities., should make 13 continuous efforts towards that goal. 14 The paper recommends to dedicate in future., wherever SR 15 possible, more intense consideration to a series of project 16 types. It does not conceal the difficulties to be expected in 17 these efforts according to previous experience. This is 18 good so, as in this way expectations are prevented from rising 19 too high. 20 To express my general reaction, I certainly agree 21 the course suggested in the paper. The proposals before us w 22 provide for an extensive scale of instruments and thus allow 23 us to take on a more flexible attitude towards the different 24 conditions in the respective recipient countries. 25 However, our activities in the agricultural field w 11 ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY ONFIDENTIAL 4 l mainly depend on our policy as to the financing of local 2 currency expenditures. 3 I should like to add a few remarks only: 4 The proposed concentration of agricultural Bank 5 and IDA activities on specified project areas is - so I 6 believe - the most effective approach we could follow. r, 7 as far as land reform programs are involved, a. cautious polio 8 might be advisable. 9 As to the irrigation sector the boring of deep 10 wells could help develop pastures in arid or semi-arid zones. j c,qfarn·,,iO. 11 qle~flt--e-P with a systematic control of cattle diseases, this 12 could create prerequisites for mixed farms with increased 13 rentabilitieso A respective project established in India •· 14 with German assistance already yielded good results. A SR 15 similar project is now under way in Iran. African countries 16 have also shown interest. 17 Furthermore, our financial assistance might 18 sometimes be more effective by improving highways and feeder l9 roads in main agricultural districts rather than by embarking 20 on irrigation works. 21 As one of the major approaches has been suggested 22 that we seek to help build up local institutions f'or fosterin 23 agricultural improvement. I concur that such institutions, 24 if they properly function, can do an effective work, especial y 25 in promoting smallholders. But as far as the immediate futur ACE-FEDERAL REPORTERS, INC. 261 CDN5TITUTIDN AVE., N.W. WASHINGTON, D. C, STRICTLY ONFIDENTIAL 5 l is concerned, there will probably be only a small number of ~ ... · subh institutions which would offer an appropriate basis to ' 2 3 be a channel for Bank and IDA financing. 4 As far as the cooperation with FAO and other agenci s 5 is concerned, I refer to our discussion about cooperation 6 with UNESCO on educational projects" My point of view as 1 to the cooperation with FAO meets the statement made by 8 Mr. Donner at that time. It will be important that final 9 decisions on all project matters remain with the Bank and 10 IDA not only formal;Ly but~in substance. 11 THE CHAIRMAN: Thank you. 12 Mr. Hudon. 13 MR.. HUDON: Thank you, Mr. Chairman. 14 I think that there are two main conclusions in SR 15 this paper. They are very simple. 16 The first is that the Bank/IDA should place 17 increased emphasis on agriculture. And, secondly, that in J.8 order to do this, it must introduce new elements of flexibil;i.'y 19 into its policies and operations. 20 I am happy to say that I agree with both of these 21 main conclusions. Over the years, the Bunk has repeatedly 22 stressed the importance of agriculture in the process of 23 economic development, and for this reason., it is a matter 24 for at least some surprise to find that, as noted in Pa.rt I 25 of the paper., only 8 per cent of the total financing made ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D, C. STRICTLY ONFIDENTIAL 6 l available by the Bank has gone into agrictilture. 2 The paper before us., I think, does suggest.1some of 3 the reasons why this percentage has been so low. And among 4 these, I think one oould mention the reluctance, by· and large s of the Bank to finance local cos ts., s pec·ial and dif-ficul t 5 problems involved in financing agricultural projects, staffin 7 problems., and reluctance on the part of the Bank to finance 8 recurring costs. 9 There probably are other reasons explaining the 10 relatively low percentage of Banl<.: financing of agricultural 11 projects, but these are mentioned in the paper, and I would 12 like to deal with each one of them very briefly. 13 I think a. continued prohibition or quasi prohibitio 14 on the financing of local costs would severely limit the Bank's SR 15 ability to finance agricultural projects. And given the 16 importance of agriculture., I agree with the paper that these 17 lirili'cations should be a.~.~- And I also agree in principl I" 18 that local costs should be financed. The exact terms and 19 conditions under which such financing should take place might 20 perhaps be left until we have had an opportunity of dis.cussin :~ 21 your forthcoming paper on this question. I suspect the 22 conditions might vary substantially from country to country. 23 In connection with local co:::its., I have one question 24 in my own mind. I am wondering whether we would be financing A 25 local costs because there is shortage of local financing in )( 'J\ ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N,W, WASHINGTON, D. C. STRICTLY ONFIDENTIAL 7 l the countries in which the projects are located, in which case 2 I think the Bank should, as it does, but I would stress this 3 point, would have to examine very carefully the reasons why 4 this shortage does exist~ 5 For instance., is the level of savings high enough? 6 Would it be possible to raise this level., et cetera? 7 The other possible reason why the Bank would want 8 to finance local costs would simply be because local costs 9 constitute such a high proportion of the total costs that, 10 really, if the Bank wants to get in itself simply on any kind 11 of a substantial scale, it has to finance a substantial 12 portion of local costs. Here, I would be inclined to be 13 extremely difficult, or., not difficult, but extremely circum- 14 spect in the sense that I would try and lceep the percentage SR 15 o.f the total cost to be financed by the Bank to as low a 16 percentage as possible. And in particular, I would be carefu 17 to try and eliminate particularly from the local costs., 18 recurring costs which are mentioned later on in the paper, 19 which I would like to discuss later on. 20 The second obstacle to greater Bank activity in 21 agriculture has been, of course, the very difficult problems 22 involved in agricultural financing. These problems are 23 succinctly and cogently set forth in Part IIA of the paper. 24 I am sure that the Bank has recognized the existence of these 25 problems for some time. But the paper., and I t;hink this is ACE-FEDERAL REPDRTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D, C. STRICTLY ONFIDENTIAL 8 l important, goes beyond the simple fact of recognition of the 2 difficulties. It sets forth the intentions of the Bank to 3 actively search for solutions to them, and I believe this 4 constitutes a considerable step forward and manifests a very s important change in the attitude on the part of the Bank. 6 The question of staffing., of course, is., I think., 7 directly connected to the questions of costs:, and I think 8 if we a.re determined to tackle the very difficult problems 9 discussed in the paper, we will have to increase our staff, a. d 10 the costs of the Bank will inevitably ~J,.f~. iz1~Jc 11'::., ..,,f::...,L. 11 I think this rise in costs can be mitigated to some 12 extent by making use., as suggested in the paper, of the 13 FAO and possibly other institutions active in the field of 14 agriculture. Indeed, I think we should welcome the proposed SR 15 collaboration w:tth FAO. 16 The terms for such cooperation and collaboration, 17 as set forth in the paper., a.re acceptable to me. And I might 18 say I am curious to hear Mr. Demuth's report on his discussio s 19 with FAO and UNESCO and, in particular, I am curious to know T"yf'C of' X 20 whether as a condition of this,,~collabora.tion these organizati ns 21 are insisting that any additional costs which they incur shou d 22 be recouped from the Bank. I suppose one should examine the 23 matter carefully and perhaps there would be sufficient 24 justification on the part of these organizations to make such 25 a request. ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N. W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 9 l But I do feel that the Bank, in approaching these 2 organizations, should not allow them simply to talk about ~ ~ 3 additional costs. I think,,1if these organizations value co1lab ra- 4 tion with the Bank, and I think they should because it is a 5 great opportunity for them -- it is the first time that they 6 really have, in a way, funds available to them to finance 7 capital projects, and as far as they are concerned, this is $1'R!DE' 8 a great·~ toward -- and, therefore, they should value this x 9 collaboration and they shouldn't think only· in terms of 10 additional costs. 11 I think they should look at their budgets, their 12 organizations, and their policies., and if at all possible shif 13 some of the resources that they already have which are being --Acrn.r r·r :/ 14 used on a relatively low priority ~r-:t:r,,a:1:,,. .,.:1:eas•t into this X 15 new field. I would hope that in any discussions with these 16 organizations and the question 0f additional costs arises, 17 where the question of recouping these costs from the Bank 18 comes up, we would make this point. 19 Now, a fourth factor which I mentioned which I thin 20 has inhibited the Bank's activities in agriculture and w·hich 21 again is mentioned in the·paper, is the importance of recurring 22 costs, at least in the case of some agricultural projects. 23 Part of these recurrent costs are accounted for by the need 24 for qualified technical personnel and part of them by the nee 25 for The example given in the paper is fertilizer and othe ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N. W. WASHINGTON, 0. C. STRICTLY ONFIDENTIAL 10 1 supplies. Here, again, I agree with the underlying principle 2 stated in the paper that if the IBRD is to rna.ke an effective 3 contribution, it probably must be prepared to finance part of 4 these costs. 5 However, it should make every effort to keep them 6 to a minimum. 7 With regard to personnel costs, managerial talent, ad TlfA'f· 8 technical assistance, I think 11 the Bank should keep in mind 9 that the United Nations, FAO, and virtually every· industrial 10 country and·many less developed countries have extensive 11 technical assistance programs which for the most part are ,g{(f)l,(l 12 administered on a el:pa~ basis, and I would say I would guess 13 anyway that a substantial part of the expenditures under 14 these technical assistance programs are for agriculture. SR 15 And it seems to me, therefore, that the Bank should 16 make a special ef'fort to secure support for the agricultural 17 projects which it undertalws from the various agencies and 18 governments which provide technical assistance. I am sure 19 that if the Bank were successful in this effort to secure the 20 help of governments and agencies in this way, it would not 21 only mean that its own contribution to the development of 22 agriculture would be increased, but also that the effectivenes 23 of many bilateral aid technical assistance programs would 24 also be. 25 In turning to the types of projects which the Bank ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D, C. STRICTL CONFIDENTIAL 11 , £1'-' u 0·1 c,~ rrntl"> l should finance, I think that ~ven those meB~· ia a-low ~at~~ / 2 in the paper should in principle be eligible. I would be 3 inclined, as other speakers have also indicated, to place 4 special stress on comprehensive ppojects. 5 The paper also stresses this on comprehensive 6 projects in selected areas and on projects designed to create 7 or strengthen specialized local institutions. 8 Like Mr. Larre, in reading the paper, I was struck i' 9 by the term "agrarian reform" which I think historically 10 more or less really means a social revolution. And I was 11 happy to hear you say the other day that in the Bank's effort 12 to deal with.agricultural problems, we wouldn't,be kind of 13 overcome by any kind of missionary zeal. But I do think FR 14 that the fact that agrarian reform can be more or less acquai t- 15 ed with social revolution does underline in a real way the jl',l'OOt..\Je:b 16 diff icul ties-1\ in bringing about a really effecti·ve agricul tura 17 program. 18 Again, reading the paper, all the difficulties are 18 mentioned. I hope that this is more than a simple enumeratio 20 on paper. I hope that the people who wrote it really feel 21 these difficulties and are deeply aware of them because 22 I think the dangers of getting involved in controversial 23 subjects is very, very great. 24 Finally, in connection with comprehensive projects; 25 and actually all the projects mentioned, great importance is ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTL ~ CONFIDENTIAL 12 l. attached in the paper to managerial and technical assistance, 2 and I would be the last one to.underestimate the importance 3 of this type of assistance. But it seems to me that equally 4 important here is education generall~r. 5 It is difficult for me to o:onceive of a successful 6 agrarian reform program without education. If' the people in .. c.ow£:iV<> K 1 R6'f\\/ '1J or weed-infested lands. For the la.st item.,/\machinery may be 7 required and could be financed from Bank loan or IDA credit 8 as has been done on three or four occasions. 9 The use of improved see.ds which could have a 10 significant effect on agricultural production is also very muc 11 a matter of utilizing local resources and here., too., it is 12 technical assistance and advice which is more important. 13 According to the FAO., fertilizers and pesticides 14 are among the most effective technical measures for raising SR 15 a.gri.cultural production and it is highly gratifying that they 16 will henceforward be regarded as appropriate for Bank/IDA 17 financing. Fertilizers and pesticides have generally to be 18 imported by developing countries and as such involve expendittre 19 of foreign currency. 20 We have been pressing for a long time that Banlc and 21 IDA should finance the purchase of fertilizers, and I a.m glad 22 that this has been accepted. Such expenditures, though often 23 classed as recurrent, are really developmental in nature, and 24 paragraph 33 of the paper recognizes this. 25 I a.m not, however, sure if the financing of ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, 0. C, STRICTLY ONFIDENTIAL 22 l fertilizers should be restricted only to cases where there is 2 intensive development of project areas or for permanently 3 upgrading lands as stated in paragraph 33. Fertilizers are 4 beneficial and produce good results wherever they are used. il'ihile 5 it is true that the best result can be achieved by a combina- s tion of favorable measures, such as irrigation, fertilizers 'l and improved seeks and by concentrating on selected areas, I 8 do not see why if a government has a comprehensive program fo 9 the entire country or for wide areas thereof, it should not b ·1'"\\ls i- 10 eligible for1 aid. 11 I do hope the flexibility of approach which is 12 stressed elsewhere in the paper will be applied here also. 13 It is true some aid-giving countries have recognized the . 14 developmental nature of fertilizers and agreed to finance the SR 15 under their aid programs, but; the prices in all such cases te d 16 to be high. 17 Under Bank/IDA credit, however, there will be full 18 competitive international bidding and we will be able to get 19 fertilizers and pesticides at the cheapest possible price. 20 Pesticides a.re not specially· mentioned in the pa.per, but I 21 presume they could be reasonably included in the term 22 11 Fertilizers or othel' supplies 11 used in paragraph 33. 23 As regards the improved agricultural implements 24 and improved cropping techniques, they are again a matter 25 more for technical assistance than financial aid~ Heavy ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .• N. W. WASHINGTON, D. C. STRICTL ~ CONFIDENTIAL 23 l agricultural mac.hinery such as tractors and farm equipment 2 would., of course, have to be financed by Bank a.nd IDA credit., 3 as has been done in the past., but in a number of developing 4 countries such financing is likely to be accomplished more· 5 easily through credits given to agricultural institutions. 6 This is also contemplated in the paper. '1 Coming to the socio-economic measures for improveme t 8 of agriculture, one of the most important items which directli· 9 concerns us is agricultural credit. J:n India we have a long 10 experience of central assistance in this field and our Reserv 11 Bank is statutorily charged with the development of agricul- 12 tural credit institutions and provision of finance on easy 13 terms. This is done through several types of institutions 14 like Central Land Mortgage Banks, State and District Coopera- SR 15 tive Banks. The Reserve Bank lends mone~r at very low rates 16 to the State Cooperative Banks ranging .from 2.5 per cent to 17 4.5 per cent per annum. 18 Even so, when the loa.n _reaches the ultimate borrowe , "" 19 he has to pay 5 to 6 per cent per annum. This point was rais d 20 by M:r. Tazi and Mr. Larre, and I agree with them that there 21 should be no restriction that instiiutions financed by 22 Bank/IDA should not re-lend the money at concessional 23 interest rates. 24 This does not mean that only IDA should give credit 25 'c.o agricultural credit institutions. So long as the governme t ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY ONFIDENTIAL 24 l of the country and the borrowing institution are prepared to 2 pay the higher rate of interest to the Banlc, I feel there 3 should be no restriction on the bor-rowing institution 4 the money to agriculturists directly or indirectly at 5 rates of interest. 6 As regards FAO, I agree with the proposals in the 1 paper. I agree with what Mr. Hudon said about UNESCO and FAO 8 bearing the aei&B-a--1 costs of staffing, et cetera~ that may 9 arise by themselves, if necessary by a. suitable rearrangement l() of their programs. And I am glad that you agree with that i I . 11 view~Frl:i • !\ 12 The paper does not refer specifically to dairy 13 farming., poultry and cattle raising, forestry and fishery 14 schemes. We have had recent cases of Bank loans to Paraguay SR 15 and Jordan for dairy farming and cattle raising. We have had 16 a case of loan for fisheries to the Republic of China., but he e, 17 too, ,r think more needs to be done. 18 Fortunately many developing countries are endowed 19 with ample sea. or inland fishing resources., but the exploita- ' t 20 tion of these resources is generally on age-old methods. 21 What the fishermen in these countries need is essentially 22 better equipment -- mechanized boats., nylon fishing nets 23 and canning facilities, as well as refrigerated transport ~G.P,'\1<'.iJElt•lre;t, ~~(l~1 ~;:;a.A,£:i) 24 Arail cars, trucks and perhaps /\ships, too. All this-€ involve 25 foreign exchange expenditure and they would seem appropriate { ACE-FEDERAL REPORTERS, INC. ~ONSTITUTION AVE., N.W. WASHINGTON, D, C. _.i STRICTLY ONFIDENTIAL 25 1 for Bank/IDA finance. 2 I'f I may ask at the end of all these a question ,.,. 3 is there not a double counting in the statement made in 11 4 para.graph 3L~ when it states 'it might be the counterpart of 5 a direct Bank/IDA loan or credit to the institution or to the 6 gove:rnment for the benefit of the institution 11 • Because once , ·- f'\{l l.t.1 tV\(,\.:, ~I ! f>lu Ry· '1 you ,ma-e:e· the loan for the m-1-&s ie~., the country has already -~ s got the benefit to sa;y that the counterpart funds will give C0\,\1.J1" l i\J(j 9 additional aid ia a sort of double G£&e.:e. That is my point. 10 Thank you. 11 THE CHAIRMAN: Well., with respect to your question., 12 the country only gets the benefit of the foreign exchange one • 13 But on the other hand., going back to Ml". Hudon I s point, the 14 Bank will keep its financing for local expenditures at a SR 15 minimum. As you get into the second and third and fourth l6 generation of these things., presumably, the Bank would not 17 have to loan as large an amount against local expenditures 18 as it did in the first instance. 19 Maybe that ts using the same money twice, but I 20 thinlt it works that way. If it is an IDA credit and maturity 21 is 50 years and there is no amortization f'or 10 and only 10 22 per cent amortization in the second 10 years, certainly, 23 during that first 20 years, this money· will be repaid and 24 reused. And to repeat, to the extent it is reused, to just 25 that extent, there wont t be the need for Bank or IDA a.ccommod< .- AGE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 26 l tion to offset local expenditures. l N. l"F""E: N""i IN 2 MR. RAJAN: That is i~±t-i-Hg--the IDA system of 3 financing. For instance, if -- y l,N'ctf".(~Nf IN 4 THE CHAIRMAN: It is 1:-n-he-r-:i:-ttB-fs the IDA system of 5 financing, but that rs what we are talking about here, if I understand the paragraph correctly. '1 Is Mr. Gordon here? 8 MR. GORDON: Yes, sir. 9 THE CHAIRMAN: Have you anything to add to what I 10 said on this paragraph to Mr. Rajan? 11 MR.. GORDON: I don't think so. I think it is 12 perfectly true, as Mr. Rajan said, the foreign exchange is av il- 13 able once, but, however, .it would be perfectly possible under 14 this proposal for IDA., for example, to lend specifically for 'he SR 15 purpose of providing the local currency, lending foreign 16 exchange for' the purpose of providing these local currency 17 resources. 'rl1e foreign exchange, then, vrnuld go into the 18 Central Bank and the local currency counterpart would be 19 available to the agricultural financing institution. This 20 would be a way of assuring that it goes effectively into the 21 agricultural sector. 22 In the same way, when and if imported materials and 23 imported equipment is ·brought in and sold in the marlrnt, agai: , 24 the counterpart could be explicitly earmarked for agricultura_ 25 credit uses and used over and over again., as Mr. Woods ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, o. c. STRICTLY CONFIDENTIAL l suggested. 2 THE CHAIHMA.N: Thank you for your comments., Mr. 3 Rajan -- very interesting and we will find them helpful. 4 Mr. Bullitt. 5 MR. BULLITT: Mr. Chairman, I found your paper on s Bank and IDA activities in the field of agriculture penetrati g, 'l as usual. 8 ! should like to make only a few comments without 9 going ovex• the same ground covered by the pa.per since I am 10 largely in agreement with its emphasis and with its argument. 11 I appreciate that not all that has to be said in the field of 12 agriculture can or need be said in one paper. 13 For example., there is discussion of cooperation wit. 14 other agencies geared mainly to technical and management SR 15 assistance. There.s·are., however., areas of a more general 16 nature., such a.s the kind of financial and exchqnge rate 17 policy which have been so much the business of the IMF and 18 which help shape the progress which can be made in the agri-- 19 cul tural sector as well as the volume and king,:1of external 20 assistance that countries may need in agriculture or, for tha 21 matter, in the industrial field., of course, which is only to 22 emphasize again the need for the closest and most effective 23 possible coordination between the Bank a.nd the Fund. 24 Also, the paper dealing, as it does, with the broad 25 range of agricultural development, perhaps quite understand.ab y ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 28 l touches only br•iefly on the question of emphasizing developme. t 2 of commodities for which there is a dynamic world demand. 3 The thorny question of avoiding programs to stimula. e 4. agricultural production of commodities in which there is 5 already world oversupply is one which I am sure the managemen 6 staff will carefully consider as further progress in agricult re 'l is made by the Bank. 8 I might say a few words about another point mention d 9 in the pa.per -- the question of local currency financing. 10 While I understand we will ha.v.~ further opportunity to consid r 11 this on the basis of a memo which the President will submit 12 shortly, I would find it difficult to argue that our policy 13 should not be flexible enough to permit consideration of 14 agricultural projects on the basis of their essential merit SR 15 and priority rather than merely the foreign exchange 16 component. The Bank must,, of course, continue to be primaril 17 concerned with the foreign exchange component of a country's 18 development needs, but in some cases local currency financing ,w 19 for a limited period can certainly help a-'e bringing forth 20 higher returns than those projects ordinarily financed by 21 the Bank. 22 In this connection, aside from the question of Bank 23 financing., there are, no doubt, a variety of small agricultur ,1 24 projects which may yield high return but are generally over- 25 looked possibly because they are more difficult to work out ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N. W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 29 1 than conspicuous large construction projects. 2 To the extent that Bank initia cive will help ferret 1 3 these projects out or more broadly induce or facilitate actio 4 in such areas., it will have made great contribution to 5 development. 6 J:rinally., and more generally., I certainly think the 7 paper quite properly stresses the importance of the Bank tal,{i g 8 more initiative to help &fl-4 shape up and to carry out agri- 9 cultural projects both alone and in close cooperation with 10 other agencie~ in the field. 11 Thank you. 12 THE CHAIRMAN: Thank you, Mr. Bullitt. 13 Mr. Illanes. FR 14 MR. ILLANES: Mr. Chairman., on several occasions I 15 have had the opportunity to stress the full support of the 16 government I represent to the new approach of the Bank in 17 agricultural matters. This new approach., as the report says, 18 doesn 1 t involve revolutionary changes., but it changes 19 emphasis and shows the greater role that the Bank can 20 accomplish by itself and with the cooperation of other 21 international organizations. 22 The development of agriculture is vitally important 23 in the less-developed countries :i.n order to keep the social 24 order and progres;:; and in order to keep particularly the 25 money value and stabiltty" ·prom experience, we know that ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 30 l the management of monetar'y policy and fiscal policy sometimes 2 are not very effective and in a few cases they are not 3 effective at all because they face sectorial disequilibrium 4 as happens when the agricultural production., the development 5 of agricultural production is lagging behind all other f\c.:-r, 1111· 1 es 6 economic -a-(}t-i:v-:l.!&y·. That is our' experience ln central banks. 7 The report., I thinl-c., is a concise and carefuL.study 8 about the pr"oblems that less-developed countries face in the 9 agricultural field. I am not a farmer., Mr. Chairman; I am 10 not an agricultural technician., so I have to refer in my 11 comments to the experience of the technical organizat,ion of 12 my country and apply to my own country. I want on this 13 basis to comment on some points of the report. FR 14 On page 3, the report says., 11 The low levels of pro- 15 ductivity a.nd investment in agriculture prevailing in the les 16 developed countries. 11 Here has been mentioned by Mr. Rajan 17 the importance of seeds., fertilizer, and pesticide and other 18 elements that are the required elements in the increase of 19 productivity. 20 Therefore, our first question in dealing with the 21 problem must be. this: Do t-h-:bs-· oottn4:i·P:f have the proper seed 22 and fertilizer in order to incx•ea.se the px•oductivity? 23 And then, the second question should be this: Do 24 these countries have the proper local organization in order 25 to advise the far•mers in the selection of frned or fertilizer ACE-FEDERAt REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 31 1 and in the cultivation of the land? 2 I think, Mr. Chairman., there is in this field, 3 according to the information that I have, more deficiencies 4 than we usually imagine. I want to mention a.n example in 5 my own country. 6 We produce not a big production, but a small 7 production of beet sugar. The production., the average pro- 8 duction, the last year has been around 60,000 tons a year. 9 Now, the new management in the factories., they are very much 10 interested in the improving the seeds., fertilizer, and 11 cultivation of land. In the last year was applied this new 12 technique, this ne·w approach, with the result that the 13 production.increased from 60.,000 tons as an average to nearly FR 14 100,000 tons. In other words, an increase of' more than 50 15 per cent,. ..@r-1--3: -w-i.--t-h the same area.. 16 I was talking wi'ch the management in this program. 17 They were saying that the result was par•ticularly due to the 18 better selection of seed, a better application of fertilizer 19 and particularly to a better advice, technical advice, to the I 11 20 farmers. 21 Well, in other crops, it has been necessary to 22 induce, also, an increase in productivity, and there was 23 applied in.Chile, like in other countries, a. bonus in order 24 to induce the farmer to use i better seed; tJ.. selected soeo; 25 and the proper fertilizer~'i 'l'he result has not been spectacul· r ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTL CONFIDENTIAL 32 1 in this field. Just that we have had a modest increase in 2 productivlty. And why? 3 Because the government has not enough resources to 4 give the technical advice to the thousands of farmers that 5 there are in the country. Therefore., improving the seedc":and 6 fertilizer were not given the result that were expected because 7 we have to increase our technical assistance by the government ,; a institution and by private institution. We are not able to 9 do these in this year. 10 Therefore., I fully share the importance that 'che 11 report gives to the i·&&l:H,- of local organization and to the 12 importance that the seed and fertilizer and pesticide have in 13 the increase of productivity. FR 14 In page 5 of the report., refers to the agrarian 15 reform. That includes not only improvement in the land 16 utilization and tenure arrangement, but also improvement in 17 government agriculture ser•vice in price and other economic ,CR.Gbi r 18 policies., in marketing and supply of !(;-3..oia-tl:B and farm requisite. x 19 I think this is a very good definition of agrarian 20 reform. Many times in Latin America we have to face the 21 dogmas of the extreme left. Accordingly., and they maJrn it 22 as political propaganda., they ,c;hink the most important is n the issue and distribution of land. This is not the fact. 24 In our experience with our agrarian reform, we have got to 25 give more importance to the technical assistance to the farmer ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C, STRICTLY CONFIDENTIAL 33 1 than to the division of land. 2 Why? Because in Chile and other Latin American 3 countries the·problem is not the big farm; the problem is .. ' i'-01?. 4 in small' farms whose size is not adequate -W· a sound economic -~ s exploitation. u Therefore, I think the report gives the exact, in my 7 opinion., definition ·what in most of the cases is agrarian a refoPm. ., 9 In page 6., the report refers to something that was 10 already co~ented on here-""'.' the foreign exchange component - 11 that the agricultural developing loan ,1;1nd tend to become 12 as small as the country b.egins to manufacture ·goods previousl 13 imported. This is a very important point, indeed. FR I understand, as the chairman said, we have to requ 14 15 the maximum contribution of the countries in supplying the cu&:..!t'!:lWCi/ . ''fiH?.56 C(.>1.1<•,(J.1 \i,'f, 16 domestic OOmf}G-B~. But as was said also, · ~ G-OJ.rn.t-ey t-hat X 17 --is· being less developed, they have: not enough savings. So 18 I think it is very important to have a policy that is aware 19 of this fact. 20 For instance, in industrial countries, when we give 21 a loan,' we have to face a similar case f'or• other reasons. l. . 22 We have to give a great -- the level of the domestic component 23 is very high, and sometimes absorb,. Ll almost all the loan 24 because they produce everything. f\O:.C 25 In the case of developing countries., there ~- other 'f.: ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHJNGTON, 0. C, STRICTLY CONFIDENTIAL l reasons in order to be flexible, also, in these particular t1' 2 cases. But/ldoesntt F(/.Dfl\ -- I repeat -- doesn•t mean that we /·· 3 doq't require w the country the maximum effort :tn supplying X er, 4 the domestic,,phange that is necessary. 5 In page 15, the report refers to the agricultural 6 institution. I think., Mr. Chairman., no one doubts about the h 7 necessity of having t,h:e special institution., particularly , B in the credit field., but I am wondering if it would not be 9 convenient to the Bank to promote like in the case of the h 10 development 1ank in Venezuela that these banks sometimes, not i- 1 Ni>l,,\";;:;f(t..l#l t- 11 only deal with the 1~ro@.e-M-e-n matter., but also with certain ·,;;. 12 aspects of agriculture as the marketing and the distribution 13 of products., because sometimes in small countries, :i.J.(o'..:;is not FR 14 possible to create several banks at once. Therefore, I Ii'" 15 think, like in the example of Venezuela,l\is convenient that 16 the bank, the available bank., take certain part of agriculturrl 17 matters. 18 In the last part of the report, I refer to the 19 cooperation with other institutions. I think this is very 20 important because these other institutions have the greatest 21 experience in the field a.nd they have also., many, the spirit 22 of the less developed countries. And I think, and I agree 23 with what Ml". Hudon was saying, we have to increase the staff 24 in order to deal with this matterQ 25 And I say., Mr. Chairman., it would be very interesti g ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0. C, STRICTLY CONFIDENTIAL 35 l if an increase of the staff, we would consider to .recruit 2 more people -fe-:1:." the less developed countries because the 3 agricultural matters., as has been said, the local factor., is 4 very important. And I think with the goo:d technician that th 5 Bank has needs the cooperation of local technicfans and would 6 be very useful. 7 For instance, and I beg,Mr. President, to correct 8 me if I am not right, I 'chink here :tn the B('.mlc we have 9 not a technician in agricultural matters from Latin America. &rtH'iR 10 I know there are many in -E8::l: international organizations that >'~ 11 are making valuable service in the development of agriculture 12 In conclusion, Mr. Chairman., I 'ch:ii.hk that the repor 13 is a very good one and tackles lJ!!.~;~~.1f5robloms\ are very FR 14 important in '6"h:e economic development. And the report is 15 aware of the diversity or the situation in several countries., 16 and formulate~ therefore., principles that are very good and 17 can be applied to most of the less developed countries. 18 Thank you, Mr. Chairman. 19 T.HE CHAIRMAN: rrhank you, Mr. Illanes. I 20 Dr. Lieftinck. :i l•,,1 21 MR. LIEFTINCK: Mr. Chairman, 1i1re other spea.lcers, . li .'.· 22 I greatly welcome the memorandum on agricultural Bank and IDA 23 policies submitted to us., and I would like to congratulate 24 you on this impor'ca.nt initiative •. I only feel that we should 25 put more emphasis in the Bank's and IDAts activities on the ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0. C, STRICTLY CONFIDENTIAL 36 l promotion of agricultural development. 2 There are these three reasons why: }'1;,;f'l/2, X: 3 The first one is mentioned in pa~agraph 2 oft-he- I dv<:) 4 memorandum which points out that in the develop~ countries., '.X 5 we find a great pa.rt of the popula.tior:i, well over:..>ttm""thi:rds.. '-, G is a.gricul tura1. 7 With the high rate of population increase in these 8 countries, industrialization has to be very rapid in order 9 to absorb the rising agricultural working population and still e 10 more rapidly in order to ~..ffect the slow decrease of' it. l.l Under the best of conditions., it will for decades 12 a.head be countries with very large agricultural' pOpulations. 13 For this reason alone, a. major problem of economic development FR 14 that immediately faces developing countries is, therefore, 15 how to raise the productivity of the land and the peasants. 16 'l'here is a second important reason which I may 17 perhaps add to the memorandum. In most developing countries, 18 improvement of productivity in agriculture is an essential i:t.i'\TIC.,/'J· . 19 precondition for industria~11 orga.n.:;lztli'tJ,..on. If there is no 20 expanding market among the agricultural population, industry 21 will not meet the purchasing power that it needs for expansion E;(t. 22 On the other ha.nd., the hig11,._ purchasing power of the industrial ,x 23 wo1"kex·s will translate i'cself as long as the absolute incomes 24 are low in a higher demand for food" 25 With the type of~ foreign exchange situation in ACE-FEDERA~ REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0, C. STRICTL CONFIDENTIAL 37 I l which these countries m:dina1"ily find themselvesJ theonly way ch';,·~ 2 of' avoiding inflation and balance of payments 11equilibrium 3 is a substantial increase of total agricultural production. 4 In many developing countries, the backwardness of agriculture 5 has been one of the main ca.uses of the. constant pressure of 6 internal inflation and of the foreign exchange difficulties~ 7 In this connection, I fully endorse vvhat Mr. Bullitt 8 has said about the close cooperation between the Banlc and IDA. 9 There is a third reason which I think I found back 10 in paragraph 8 of your memorandum where it is stated that in ost II of the less developed world., a majority of the population will 12 continue., f'or many years to come., to depend for their livelihood 13 on small farms or livestock herds. Crucially important to. FR ;., 14 development in these areas is the evolution of patterns of 15 agricultural production and tPade that will make these small 16 units viable in a modernizing economy, which will give 17 increasingly productive employment to the rural population, 18 and will avoid aggravating political instability and wasteful 19 land use. I I 20 It is for that reason that I think we should not 21 try to concentrate our efforts in these fields entirely to 22 bring about a shift in the production pattern so as to 23 emphasize conunodities for which there is a more dynamic world 24 demand, maybe countries where this is useful. 25 On the other hand, countries in the early stages ACE-FEDERAL REPORTERS, ING. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0, C. STRICTLY CONFIDENTIAL 38 1 of development should try to at least increase their 2 agricultural self-sufficiency. They just cannot afford a 3 high food import bill. And there is in these countries .usuall 4 an abundance of labor which can only for a long time to come 5 be usefully employed in agriculture. Still, there are ver•y 6 large potentialities for increasing the efficiency_of producti ity 7 of lc;l.bor. a It is for these three reasons that I do think it is 9 most important to put more emphasis on agricultural developmen. 10 In fact., in most of' t_he x>eports of the Banlc I s gener'a.l economic 11 survey miss ions and in a number of the Bank appraisals of econ mic 12 development programs of member countries, submitted, for insta ce, 13 in connection with consortia and consultative groups, the FR, 14 major importance of agricultural economic development has been 15 stressed, but in many cases, for some reason or other, the 16 Bank's recommendations on agriculture have met with relatively 17 little response except perhaps those with respect to irrigatio, 18 drainage, and good flood control. In fact, it is very clear 19 from the statistical information on page 2, paragraph 5, this 20 I kind of agricultural projects has received the bulk of Ba.nk 21 and IDA financing, but many other agricultural projects 22 recommended by the Bank by missions and by appraisals of' 23 development programs have been relatively neglected. 24 I think for that reason the Bank should continue 25 teaching of underdeveloped members the great importance of an ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, 0. C. STRICTLY CONFIDENTIAL 39 integrated approach to development given sufficient emphasis l to agricultural development. I think the primary task of the 2 3 Bank and IDA in this field should be a promotional one. I, 4 therefore, welcome the fact that in the very first Qaragraph 11 1 of your memora:ndum., you have yourself used the word promotion 5 0 6 the second paragraphj. The Bank and IDA, have in the past X 7 devoted considerable attention., effort., and resources to 8 promoting improvements in agricul tur•e. 11 11 1\-.,,. And in paragraph 22., you have used the words in 9 10 stressing the importance of expanding our activity., I do not 11 have in mind any dra.matic innovations., but rather some shift 12 in emphasis., an increase in flexibilit~r, and above all,! a 13 more active initiative., either directly or in cooperation wit FR 14 other agencies., to help our members shape up and carry out 15 agricultural projects.n 16 So our efforts should in my opinion be primarily 17 educational. We should als.o stand ready) with technical IN ittl', 18 assistance and as.sist in project preparation as- a very import nt ,.._ 19 field. II 20 I As a matter of fact., 1::ei:ng a :Lending institution, 21 we should be ready to ba.ck up these efforts by. our resources, 22 and., of course., in a flexible manner., in a cautious and flexl le 23 manner. And, again, I ·welcome the intention of doing so. 24 Now, in Chapte1" 2 of the memorandum., I thin.le it is 25 very useful that a discusaion of the lessons we have learned ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0. C. STRICTLY CONFIDENTIAL 11.0 I ourselves in our past experimentation with the financing and 2 promotion of agricultural projects, I think we should keep 3 these lessons, these experiences., well in mind, as -:"'xt· has 4 been pointed out by several Directors., and understand from 5 our experiences that this is a very difficult field in which 6 to make r•ap:t.d progress. 7 But I do think that inasmuch as we r•ea.lly take 8 this challenge seriously, we should not hesitate if soi.~equir d 9 to strengthen our professional staff in doing this very job 15 lending with savings of their own. And if they prefer to use 16 their savings, their local savings., for projects which have a 17 less higher priority than in our best opinion we think is the 18 case., then., we should be .frank enough to tell them and reduce 19 our component of the financing in order to give them the 20 stimulus if we want the project to put up more local 21 money for the end project of the kind we are discussing. 22 Now., with respect to financing of current expenditur s.., 23 although I welcome the caref~l conditioning of this kind of 24 financing in paragraph 33, that it should only be for a limite· 25 period provided we are satisfied that adequate local resources ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE , N. W. WASHINGTON, D. C, STRICTL ~ CONFIDENTIAL 1 will thereafter be available and only if proper provision 2 is made for maintenance of this after consideration of proper 3 agricultural policies., I welcome these conditions. But still., 4 I feel we should he fuost careful in entering this field of s financing current expenditures. s We should not create reliance on the Bank and IDA 7 for financing such expenditures, but res_trict ourselves in a principle to the promotion and suppor'c in financing of 9 productive facilities of a lasting character and require that 10 the members themselves talrn care of the current requirements. 11 Now, with respect to the credit, agricultural 12 credit., here again., I feel that we should be most cautious in 13 entering the field of a full term of crop seasonal financing. FR As much as we would decide to mal{e a great contribution to 14 15 agricultural credit institutions, which I am strongly in fa.vo 16 of, I think we should be helpful to these institutions, no'G 17 only with technical assistance, but as far as our resources 18 would be made available in allowing them to enter the field 19 of medium term and longer' term financing and concentrate 20 ourselves on tha.t kind of credit for the purchase of' implemen -s 21 and tools and machinery, fox~ the purchase of better farm 22 houses and improvements of a. more lasting character for which 23 they usually have no funds at all and cannot attract funds 24 elsewhere_. For crop financing, seasonal financing, I think 25 in many cases they will be in a. position to attract resources ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0, C. . STRICTL~ CONFIDENTIAL 48 l short-term resources., because it needs onl~' sort of short- 2 term lending. 3 I also agree that the agricultural projects which 4 we are ready to support should not necessarily be of a self- 5 liquidating character. They should be fully justified in 6 terms of theh" overall contribution to the economy of the rur· 1 7 country. That is., the ma.in considerationp Again., self- a liquidatin?f but I don I t think we should make that a hard 9 and fast condition for our assistance. 10 With respect to credit rates, I think we should be 11 aware of the fact that agricultural credit., particularly 12 medium-and 1.ong-term agricultural credit., has to be low intere t 13 backo Otherwise., it just doesn't work. If that is meant, if FR 14 to have that in mind in discarding concessional interest rate, 15 I am doubtful. Perhaps you ha.din mind that interest rates 16 in agricul'qure for medium-and long--term credits have to be 17 low. Otherwise they do not function correctly. 18 But with this amendment, I think., I could fully l9 agree with your statement her•e. 20 And., finally, I come to the assistance cooperation 21 with FAO. Here., I just have to say· the remarks I made alread. with respect to UNESCO e.-e-iaJ.-0., with respect to education., I y. 23 think we can usefully try to attract specialists which they 24 have available., but I think the identification of projects., m st 25 of the technical assistance., perhaps some we could share with ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0. C. STRICTL CONFIDENTIAL 49 E.•Nl> l FAO., preparation of projects~ use control, I think that. 2 all should be done well with all people. 3 Perhaps you could experiment whether we could 4 delegate some of the assistance to FAO, but I am not very 5 confident that this will be a success. I don't think it woul 6 be wise to give direct subsidies to FAO. I think we should '7 be prepared in case we believe 'their assistance can be usGful 8 to finance the expert, and we borrow from that. But I dontt 9 think we should enter tp.e field of direct subsidizing the 10 activities of the sister institutions. 11 'l'hank you. 12 THE CHAIRMAN: Thank you, Dr. Lieftinck. 13 In this question of financial arrangements which FR 14 you have touched on, 11/Jr. Hudon touched on, I would rather 15 like to leave that on the back of the stove until Mr. Demuth 16 comes back. Then we will 1-mow what we are talking about. 17 In principle, I don 1 t think there is any particular 18 difference between your thinking and Mr. Demuth 1 s and mine. l9 But it may be that we will have to be a little generous in 20 order to get this thing off the ground for a year or two. 21 But maybe not. Let 1 s just wait and see. We wiJ.l have a 22 report next week. 23 Will you be here next we.ek, Dr. Lieft inck? 24 .rvn:i.. LIE1;ir-.rINCK: Sorry., I have to go to Pakistan. 25 THE CHAIRMAN: That J s what I thought. I wasn I t ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N. W. WASHINGTON, D. C, STRICTL CONFIDENTIAL 50 l sure. Because I think by next Tuesday we will have something 2 on that., but we will keep you in touch with .;Lt. We are i'eeli. g 3 our way into it with both of these organizations. 4 Mr. Reilly. 5 JYJR. REILLY: Mr. Chairman., I hope I can be forgiven s for speaking to this chc:Cir again. Sir Eric Roll emphasized 7 our support of this paper, but as he unavoidably can't be her- 8 this morning., there is one point I would like to throw into tt e 9 discussion. It really hinges on 'ohe fact that Mr. Lieftinck 1-0 has just emphasized, and which we all acknowledged., vast 11 numbers of the population of the less developed countries 12 are in agriculture. 13 I am thinking particularly of countries., for instan e., FR 14 like IJ.'anganyika or rfasaland., where they live in villages }., 15 separate from ea.ch other and where they d_epend on their 16 subsistence agriculture for the very low standard of living. •.• ~i.. l 17 I think as Sir Eric pointed out., until we can 18 .arrange that standard of living, you don't get a real takeoff 19 point. And hitherto we have been talking rather in terms of 20 the Bank projects necessarily .so, ,) I am sure from the point 21 of view of IDA ·a.Rd credits and IBRD loans., but I am wondering . x. 22 whether we could also get into the field of improving the 23 agriculture in these particular villages and the individual 24 farmer.· 25 I am thinking of what has been successful in our owr ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N. W. WASHINGTON, D. C, STRICTL CONFIDENTIAL 51 1 country where the Ministry· of Agriculture has an advisory 2 service which has done a lot to raise the standard of living 3 and the production of the ordinary- farmer and thinking, too, 4 although I don't know about him, about the ·-- Mr. Rajan OiF 5 probably knows much more, I believe, ~ the efforts in India 'f 6 for experimental farms what I am wondering is this: Whethe 7 perhaps it is not, you might feel, a field for the Bank, a although perhaps we could use some of the technical assistance 9 mone;y- and the reserves in this field of the kind of vwrk that 10 was done, I think, in the rr1 ennessee Valley of trying to choose 11 the most progressive farmer that you can find in the village., 12 trying to persuade him to 'calm on and just improve his ordinar 13 methods. Some of the methods they are using are historical FR 14 and ~ery primitive.;, and quite a small improvement would malce 15 a difference to the standard of living and leave something els o 16 rrhis means., of course, having some kind of a.gricul- 17 tural advisory service which doesn I t want to be too technical., 18 ·which doesn't need to be college trained men., can il:ery often 19 be people from another country which is just one jump ahead in 20 II agricultural improvements and farmers themselves who are used 21 to the conditions, agricultural soil conditions, of the area 22 who can give your chosen farmer advice on how he can improve 23 his methods. And one hopes that in that way., he will set an 24 example to the village so that the whole standards of the area 25 can be improved.. ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE, N.W. WASHINGTON, D. C. STRICTL CONFIDENTIAL 52 1 It seems to me that quite rightly in the paper we 2 are talking about selected projects and that is an inevitable 3 way of considering big loans., but there are going to be very 4 wide areas of the country which are untouched by irrigation s projects or any land settlement projects. Yet I am sure s there is a very big field for incr•eased agricultural productio 7 for raising the standard of living, and as Mr. Lieftinc.k said., 8 of ma.king a market for your industrial products and providing 9 the incr·ea.sed food which increased small industries will 10 require in the nearby towns and villages. 11 This is nothing new., of course., but it is just somet ing 12 that I hope that the Bank might get into really for two 13 reasons : FR 14 One., I think the ex-colonial powers can't easily do ·t. 15 This is rather an intimate business of getting into 16 ahd persuading the local politicians to accept the idea. 17 Secondly., I am not sure it can be left in these coun- 18 tries to the governments where quite naturally the politicians 19 are often more interested in the more spectacular type of 20 project, but it is something where the Bank with its reputa~y::; 1--· 21 tion for impartiality, its international basis., I think, might 22 be able to get very big results without too much expenditure. (Z..:r":>1,.1vrs 23 When I say., 11 big r~#:trs., n I am sure this will 24 be disappointing. One will get a lot of disappointments, but 25 I am sure., also, that it has got to be done. ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHJNGTON, D. C. STRICTL CONFIDENTIAL 53 l Thank you, Mr. Chairman. 2 THE CHAIRMAN: I am not qu:i.t e clear, Mr. Reilly. 3 Are you suggesting something other than the thought that is 4 put forward in this document that the agricultural developmen 5 and finance companies might often.,and quite properly should 6 have., technical advisors that would give advice and assistanc· '7 through the country? Are you suggesting something other than 8 tha'c? There was something a.long the line that indicated to 9 me that ;;,rou thought that the Bank itself might go out and 10 deal with these people. 11 I, of course, think this would be wholly impractica. .. 12 MR. REILLY: Yes, I agree with you that the Bank 13 itself, but I am thinking the money for this., the encourageme t FR 14 to pay for the agricultural advisors in these areas., the mone 15 ·which is required to get certain number of key experimental 16 farms going. 17 THE CHA.IRMA.N: That's contemplated in here in these 18 agricultural development companies, it seems to me, It is 19 touched on as a possibility. 20 Am I not correct about that, Mr. Gordon? 21 MR. GORDON: Yes, I think that Mr. Reilly might lool 22 at paragraph 25 where we specifically mention assistance on 23 an intensive program aimed at modernizing cultivation or 24 grazing practices, a.nd so in a defined zone now under 25 efficient cultivation. ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTL CONFIDENTIAL 54 l Certainly, it is contemplated. 2 THE CHAIRMAN: You said as a matter of philosophy, 3 but I didn 1 t want to leave any impression here there is some 4 possibility that the Bank itself, as opposed to some form of s colonial power, might go out and star·t doing a little missiona· y s work with some of these folks. It will always be done, it 7 seems to me, by the local government or some.creature of the 8 local government which might take the form of one of these 9 development entities which., to be sure, we could finance ii' 10 everybody agreed it was a good idea., either by loans from the 11 Bank or IDA or for a limited time, certainly, by some te.chnica 12 assistance grants. 'I1his paper contemplates that. 13 MRo REILLY: Yes. l .., FR 14 THE CHAIHMA.N: Thank you, Mr. Reilly. ~ 15 Mr. :tutierrez Cano. ~ 16 MR. GUTIERREZ CANO: Mr. President, the document 17 that has been circulated is., in my opinion., an important 18 contribu,'cion to· the future assistance of the Bank and IDA 19 with improvement of agriculture and developing countries. 20 ll':L1he description of the peculiar characteristics of agriculture 21 and of the specific problems posed by assistance to the 22 agricultural sector is very clear and shows what careful thougtt ~ ~as been given to this very important question. 24 Despite the volume of assistance given by the Bank 25 and IDA for agr:i.culture up to the present, the contx•ibution han ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHJNGTON, 0. C. STRICTL CONFIDENTIAL 55 l not reflected the importance of the agricultural sector to 2 economic development. rrhe experience thus fa.r obtained by 3 the Bank and IDA should be used to seek ne\'v ways to ma};:e 4 their assistance even more effective. 5 One of the most important conclusions contained in 6 the report is the recognition of the special characteristics 7 of agriculture. One reason why the Banl{ and IDA should endea or 8 to find specific solutions even to the extent of modifying 1 J 9 some criteria they have applied up to the present. '1 he 10 returns from agriculture are usually lower than those from ot er 11 sectors, which ma.lees it difficult., if not impossible., for tho 'e 12 engaged in agriculture to resort to private capital markets. 13 Consequently, in many countries, gover1nments have had to FR 14 come to the aid of this depressed sector., setting up agencies 15 and services usually of a governmental nature through which 16 credit can be channeled to farmers on suitable terms. 17 1 rhe new study of the action to be ta.ken by the 18 Bank and IDA in financing agricultural development should, 19 therefore, consider the above situation which I believe is €h 20 result of' the complex nature of our agricultural economy. 21 In the futu1"e activities, the Bank and IDA should, 22 therefore, take into account and even profit from the existen e 23 of such bodies cooperating closely with them a.nd using them 24 in many instances as channels for the distribution of indivi al 25. loans and even empowering them to study and appraise those ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, 0. C. STRICTL CONFIDENTIAL 56 1 loans under general conditions to be agreed upon. This would 2 prevent a.n excessive increase of the worlc of the staff of the 3 Bank. 4 As stated in the reportJ most agr:tcultura.l projects 5 except some large irrigation projects and the like require 6 only small sums ~J1d ::tl}e:i;_r ;;t:'Q~µ.--gri, ,}~;Q}1lponent is usually very sm 11. 7 For this reasonJ the contribution of the Bank and 8 IDA for agricultvral development should contemplate financing :~ IN 9 of expenses &.ft€I:,- local currency·J and the report announced on the ii- 10 proposal submitted sometime ago by Mr. Machado wi...11 certainly 11 play an important role for this purpose. 12 Since agricultural activities are less profitable 13 than those of other sectors of the economy, they require FR 14 special treatment in the granting of credits. The lower ' 15 yields in these activities should be taken into account, 16 and it would be very advantageous., thereforeJ to admit the 17 partial return for the project financed by the Bank instead 18 of requiring that all projects be self-liquidating so that the· r 19 returns cover> them in the amortization and in the interest 20 of the loan. 21 Part of 'che difference could be borne by the general 22 economy of the country, relieving the agricultural sector. 23 On these bases, which indicate the characteristic of future 24 assistance by the Bank and IDA to the agricultural development 25 of member countries., increased cooperation with those countries ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 57 l and their efforts to improve their economic and social 2 structures could be achieved. The determination of prioritie, 3 always very difficult in a sector such as agriculture, could 4 certainly be undertaken in cooperation with the member govern 5 ments. 6 The material activities of the Bank and IDA would '7 probably never achieve their obj~ctives unless new avenues 8 are explored for ma}cing the supplementary and essential 9 investments in human resources. Agriculture is the sector mot I 10 1n need of· the i-r1·t:ie:rifr¢ effort in the field of general and 11 specialized education and, consequen'cly, the Bank should give 12 special attention to the education and professional and 13 technical training of' those engaged in agriculture. FR 14 At the financial and comrnercia.l level this requires 15 the provision of assistance by the Bank or IDA for• agricultur 16 or marketing activities and for agricultural industrializatio. , l '7 two factors which, as the report accura'cely states, are essen ial 18 to agricultural development. 19 Cooperation with international organizations such 20 as F'AO and others and with foundations and other organizatlon 21 with experience and staff tor the solut:Lon of agricultural 22 problems will certainly facilitate this task and at least ini ia- 23 lly will make it possible for the Bank to avoid ma1{ing 24 disproportionate additions to its technical staff in order 25 to meet the needs of the financial policy ln the field of ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N. W. WASHINGTON, 0. C. STRICTL CONFIDENTIAL 1 agriculture. 2 Such cooperation should always be compatible with 3 the ability of the Bank and IDA to decide on the advisability 4 of financing the projects submitted to them., and the a.ppra.isal 5 and final decision in this will rest with the Bank and IDA. s Although it is not the purpose of this document to 7 lay down specific guidelines for future assistance of the a Bank and IDA to the various aspects of agricultural developme t., 9 it does certainly contain~ elements on the basis of which ). 10 a new policy to be followed can be kept in mind. And I wish 11 to express my confidence in the success of this endeavor 12 which is such a significant aspect of the contribution of 13 the Bank and IDA to the p:r•ogress of the developing countries. FR 14 Thank you. 15 THE CHAIRMAN: Thank you., Mr. Gutierrez Cano. 16 Miss Brun. 17 MISS BRUN: Thanl: you., Mr. Chairman. 18 I also appreciate very·much· the opportunity we have 19 been given to have this discussion, and I find the paper in 20 front of us very constructive and most helpful for our 21 discussion. Development of agriculture is certainly .a subjec 22 of high priority in most of those countries in which Bank and 23 IDA operate. The Bank has already gained some experience in . 24 the agriculture development field, and on the whole., I want 25 to support the proposal that this activity be continued and ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. ·N.W. WAljHINGTON, D. C. STRICTLY CONFIDENTIAL 59 1 also extended. 2 I just want to express a few observations and remark. 3 I appreciate the proposal of a cautiou~ and a step- 4 by-step approach to the many problems in development of 5 agriculture. I think we always have to keep in mind that s t11e · people of the countries concerned have their own 1 experience., learned through centuries which., perhaps, applies s more in agriculture than in any· other field in which we a.re 9 operating - and that it is extremely important to have the 10 governments, and the farmers as well., co-operate in our 11 efforts. 12 I am pleased to see that forestry and fisheri-es 13 are included in your development program. FR As is probabl;y7 known., my own country has been 14 15 successful in developing a rather high standard in agriculture 16 This development has mainly been due to three factors: a land 17 reform., development of a credit system, and education. I 18 might call those factors together an agrarian reform., and 18 this reform has taken place during at least J.CO years. The I I ~ .01",;tK.c,. 20 I 1and reform in Denmark, breaking up someA big farms and doing 21 away wi'Gh dependency and tenancy was initiated about 1800 22 and has been in progress since then. ~ The credit system is to a high extont based on U cooperative societies. Incidentally, other cooperatives IN!:! 25 ope1•ating in marketing and purcha.nt and in processing make a ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE, N.W. WASHINGTON, D. C. STRICTLY. CONFIDENTIAL 60 1 similar great contribution. 2 The development in education comprises elementary 3 schools., and agricultural schools and training facilities, A«t, ·'1< 4 befr'.i::el:ee a comprehensive organization of agricultural consulta ts "f. 5 r·eady to serve the farmers. The agricultural education progr .m 6 is government supported. 7 Although development of agriculture in the countr:te; 8 we are now considering may not be similar to the development 9 over the years of farming :tn a Northern European country., 10 and may.be very different from one developing country to 11 another one., I would like to emphasize the necessity of 12 education in any agr;i..cultural development process. 13 In order to build up a credit system, be it FR 14 cooperative or otherwise., elementary education is indispensab e. J.5 And to have the farmers obtain the highest benefit of the 16 mone~r which Bank or IDA spend for irr:tga,tion, or land l\{JiL,e..vi1.--r vd~ l'it.., a;;;:l)..-c ,\1·, c;_,..i Gtt0<;n.:~. .o:~s .. {\':.,t,E":b 17 settlement or other agricultural pr•ogra.ms , 1, I would think HJ it most important to have a Bank a.gricultu:.ea.1 project. linked 19 with an educational project. 20 I want also to give my support to ;your proposal, 21 Mr. Chairman, of improving agricultural production, as a 22 whole., in a limited area.. A so-called nucleus-estate 23 (paragraph 26) may be a good help but is it necessary that 24 it should be large? 25 Moreover, I would lil{e to know if these estates ACE-FEDERAL REPORTERS, INC. ~6 l CONSTITUTION AVE .. N. W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 61 1 which should become centers for demonstration and training, 2 and other operations, serving the smallholders, are contem- 3 plated to be self-supporting. ilitG -r1t1::~, of~(<-A-"f·e;b or-1 P~cF•,'$? 4 It seems to me that the benefit to the smallholders s and their confidence in the leading farms will be increased if s those farms are nonprofit. I agree with y,ou that the farms 7 would be appropriate objects for Bank/IDA financing, and a I suggest ·chat we find a way to estab1ish the farms as non- 9 profit enterprises. Perhaps a Bank/IDA financing could be 10 supplemented by some technical assistance measures. 11 I likewise want to support the proposal of getting 12 more fiexibility in financial policies as to agricultural 13 financing., so that the Bank may more than previously extend FR 14 loans for domestic expenditures and., also., may finance curr·ent 15 expenses, e.g • ., for technical services and other operating 16 costs. We must., on the other hand., be careful not to place , 17 too heavy a. future burden on the borrower b~r financing Cl}rrent 18 expenditures out of long-term loans. 19 Finally, I want to draw your attention to another 20 point. In para.graph 28 it is proposed to build up 1ocaJ. 21 agriculture institutions for• fostering agricultural improvement 22 in member· countries, including farm credit agencies, agriculture 23 development ·corpor·ations and other agencies in order to channe 24 funds. 'l'hese institutions are contemplated also to help 11 25 introducing other elements of the very needed 11 agrarian ref or • ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 62 Although the baclcground will va.ry from country to 2 country, I think we should consider, as far as possible, to 3 make use of existing institutions in the countries before 4 creating new bodies. Some of the activities which we need 5 may already be handled by Minis tries of Agriculture or by s other existing agencies., and the Bank might., under a tecl1.nica.J 7 assistance project, strengthen existing institutions in 8 providing them with wome needed experts. If., by this means, 9 we can cooperate with the institutions of the country itself, 10 we should probably,- derive the highest benefit. 11 Thank you, Mr. Chairman. 12 THE CHAIRMAN: Thank you, Miss Brun. 13 Cooperation with the local institutions, we will FR 14 engage in that practice to the maximum. rrhere is no question 1s· about that. 16 Mr. Gordon, why not take this opportunity for a 17 minute or two, if you would step over here, to talk a little l8 about these nucleus estates, on page 15., paragraph 26, that 19 Miss Brun has touched on. Just a little background about 20 the thinking on these. Her particular question., I think, had 21 to do with whether our contemplation was that those would be 22 conceived as profit-making entities or otherwise. 23 MR.. GORDON: Well, I think the thought underly·ing t ese 24 few sentencei.:, here was that for many kinds of modern agricult .ral 25 activities., there is a certain minimum scale that is necessar r ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 1 to carry it out for the processing of the agricultural 2 products., for the commercial market., ·or for expor'c. The 3 organization of agricultural equipment which normally an 4 individual small farmer ca.n 1 t afford to use. All the other s things that are involved in raising what may have been in the s past a largely subsistence far•m up to a modern sea.le. 7 And it has certainly been true in some areas that a the existence of a center which could serve as a source of te 9 nical assistance to the farmer, as.t\ a pool of equipment which ·y.. 10 ca.n be let· out to individual farmers on a hire basis and whic 11 can organize the processing and marketing of his product 12 efficientlyj) has been a very useful a.id to increasing agricul 13 tural productivity and improving the returns to the farmer hi - FR 14 self. 15 There is bo . necessary reason., I think., why this has 16 to be a. lar·ge estate ex()ept_.that certainly the whole complex 1'7 has to be of a certain minimum size., depending on the kind 18 of production that is required. There is no necessary 19 1 assumption that this has to be a profit-making entity except, 20 again., that it is likely in many cases to function more 21 efficiently if there is a profit motive behind it. 22 This doesn't mean that it has to or should exploit 23 the fapmers that are dependent on it., that surround it. And 24 I think there are ways of introducing control as to prevent 25 such exploitation. But the mere setting up of a conventional ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 64 1 demonstration farm in and of itself, I don 1 t think we could 2 rely on it to give the kind of lift to the whole patt;ern of 3 agriculture in the surrounding area that we are aiming at. 4 There has to beJ I think, ultimately an economic motivation 5 and economic conception behind it rather than simply another 6 governmental institution or even a charitabl~ institution, if 7 you like, which is not guided by a calculation of a possibili y 8 of increasing productivity and selling the product at a 9 profit in the long run. 10 THE CHAIRM/\N: Might it be in some cases some form 11 of a cooperating undertaking? 12 MR. GORDON: Entirely possible, I should thinlc rrh·· s 13 is a matter largelyJ I thinkJ of the traditions and the FR educational background of the people that you are dealing wit. 14 15 I thin1{ that, as Miss Brun pointed out, the organization of' a 16 effective, a well-managed and efficiently opera.ting cooperati e 17 system, is of a long and rather complicated process. It 18 isntt something that one can simply set up overnight and 19 expect to wor·k. It is often easier to organize a conventiona. 20 type of corporate enterprise and perhaps eventually convert 21 i'c into a. cooperative system. 22 THE~-9HAJ:R.MAN: · Well, as has been said by at least 23 one other Director., there is a. certain appeal to this nucleus 24 estate idea. At least, there is to me a certain appeal, not 25 only· as a p:es.ctical functioning entity, but it has an ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 65 1 educational aspect. It has a technical assistance aspect. 2 These things can't be created in too many places in the world. 3 Perhaps if we were ible to find even two or three 4 places in the world which had a set of facts that warranted s going ahead and trying the idea., we would be pretty well off. s Again, it vmuld be nothing new about 'Ghe idea of a nucleus 7 estate., really., but we would be talking about a pilot op0ratio a in '.8, given area with as good technicians and as sound financin 9 as could be arranged. 10 In all these alternatives, I confesss this appeals 11 to me more than a great many others. 12 MR. GORDON: There is one where there is a good dea.l of' 13 experience. The Cow.monwea.lth Development Corporation has FR 14 established a number of very· successful nucleus estates in 15 some of their areas of activity., and., simila.rl;;,r, I think in s01 16 of the :French former colonial territories the attempt has been 17 made with a good deal of success to establish 18 THE CHAIRJYL:'.'1.N: It is 'G:r:ue, isn 1 t it, Dave., that the 19 most experience, the most competent of the various people we· 20 have advised with seem to think that this is the best way to 21 proceed. It is one of the wa;ys that ought to be tackled in 22 an important way -- put i c that way. 1 23 fv'.!R. GORDON: I agree entirelyJ and I think it has 24 perhaps the obvious advantage that gives you a. handle to grab 25 hold of. It gives you t,. functioning organization that you ca ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N. W. WASHINGTON, 0. C. STRICTLY CONFIDENTIAL 66 1 work through in dealing v-rith a problem which otherwise becomes 2 very diffuse and difficult to contend witho 3 THE CHAIRMAN: Again., thank you., Miss Brun, and 4 thank you., Mr. Gordon. 5 Mr'. Khosropur. 6 I MR. KHOSROPUR: Mr. Chairman., I would lilc.e just to 7 say a few words in support. I sincerely congratulate you 8 like my other colleagues for this excellent reporto I 9 especially welcome your proposals on three major points which 10 in my opinion constitute the basic elements of our agricultur·l 11 policy: 12 First., taking active initiative to help our member 13 countries to shape up and carry out agricultural projects; FR Second, helping creation or strengthening specializ d 14 15 local institutions for channeling Bank credits to projects or 18 individual farms; 17 And, third., financing local currency expenditures o · 18 the agricultural projects. 19 I strongly support the idea of financing local 20 01..n·rency expenditures of the agricultural projects to the 21 maximum extent possible if the project is really good and 22 · of high priority and if we want to keep the developing 23 countries in the agricultural field. This would be, as 24 suggested in your report., by including local currency 25 expenditures directly in the loans or credits or by means of ACE-FEDERAL REPORTERS, INC. 261 CONSTIT'uTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL l revolving funds. 2 In regard to the land reforms which was mentioned 3 at times here, it is true that the land reform in the majoritJ 4 of the developing countries might be more political and socia ,ltii=i-i,\<::.""ffrNT" :.X' 5 reform than economical. But if the Banlc is hea-4.~ to help ' hem 6 on the execution of these reforms., once the land reform has· 7 been carried out successfully, I think the Bank can give 8 directly or through the agricultural institutions some 9 financial and technical help to the cooperatives in order to 10 promote agricultural production if, certainly, the country 11 requested that. 12 ~\1so, a factual study of the land :r•eform in some . l 13 of these countr•ies and the results obtained by these reforms FR 14 would be, in my opinion, of.great interest to the member 15 countries .as well as to the Bank itself, maybe for our future 16 development in these matters. 17 Thank you very· much. 18 THE CHAIRMAN: Thank you, Mr. Khosropur. 19 Mr. Garbas, would JlOU like to comment? 20 MR. GARBA: Mr. Chairman., I give my wholehearted 21 support to the Pr•esident I s report regarding proposed Bank/IDA 22 policies in the field of agriculture. 23 As the document has clearly brought out, a large 24 p1·oportion of the population of the developing countries 25 depends on agriculture, and again this sector contributes ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N. W. WASHINGTON, D. C, STRICTLY CONFIDENTIAL 68 ' 1 a large share to the Gross Domes tic Product. Hence the 2 expansion and modernizationuof' agriculture and related 3 production is of crucial importance to the development of the 4 economies of these countries. 5 The proceeds from export products will determine 6 to a large extent the volume of imports which can be made 7 available for economic development in other sectors; the 8 efficient expansion of domestic food production will reduce 9 dependence on imported foodstuffs; the increased productivity of 10 agriculture will determine whether the income of the great 11 majority of the people can be effectively raised and this wil 12 in turn determine the size of the domestic ma.rl{et for the 13 ne·w industries which are expected to be createdo All this is FR 14 common lmowledge. And 1.t is gratifying to observe that a 15 number of the Directors. who have spoken so far have agreed 16 with these conclusions. 17 In supporting this policy by Bank/IDA to breal{ new 18 ground I wish to record my appreciation for tho Banl-c I s recog- l9 nition of the place of agriculture in the national economies 20 of the developing nations, and the BarDc's intention to give 21 this sector high priority in the future. Sir Eric has 22 very appropriately compared the role of agriculture in a develop- 23 ing country to the dynamo or motor. 24 Hence, it is not by mere accident that the 25 developing countries which are now. beginning to take the ques ion ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .• N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 1 of economic development seriously, have given a.gricul ture the 2 central position in their development programs. Any concerted 3 effort., therefore., in the direction of an llagrarian reformn, I 4 as this phrase has been used in this document., will go to the 5 heart of the problem of development in these countries. 6 rrhe difficulties in the way of agricultural financin, 7 have been adequately treated in paragraph 6 of the document, a and the special problems facing the Bank in meeting some of 9 these needs have been recognized in paragraphs 10, 11 and 12, 10 points. and as such it is not my wish to go over these ~ -------1 11 I am in full support of the views expressed in 12 paragraph 15 of the document about agricultural credit being 13 suited for Bank·-IDA assistance, and of this ldnd of cx•edit FR 14 being very effective aid to higher pr•oduct.ivity. 15 In many of these developing countries there already ___ j Hi exists some type of an agricultural credit institution, and in ;(. 17 a few, there are Land Banks or Farmers' Cooperative Banks. 18 These institutions could usefully be employed as media for the 19 injecting of capital into agricultural production. 20 And where these agricultural credit institutions do ·21 not exist and there .is the demand., then consideration should 22 be given to some form of participation with lo~al interest in 23 order to establish.such a one, along lines similar to those 24 currently- followed by the IFC in the establishment of 25 development banks to assist in the area of industry. ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N. W. WASHINGTON, D. C, STRICTLY CONFIDENTIAL 70 1 11he need in the area of technical assistance is jus 2 as great as in that of fihance, and in this I believe that, a 3 boost will be given to the agriculture of the developing 4 countries in strengthening what is known as the Advisory 5 Service, for this is the body whose responsibility it is to 6 transmit modern progressive techniques and practices to the 7 farmer. in the outlying areas" In, this regard, I welcome. the 8 proposal in paragraph 39., that it is intended to make use of 9 the JPAO as a major source of technical and management assistance. 10 I again welcome the President 1 s intention to present 11 a paper to the Directors on the issue of local currency 12 expenditures) and cannot agree mo1"e with the feeling that 13 there should be flexibility in these matters, and that merit FR 14 and priority·., rather than the foreign exchange component, 15 should be the determining factor. 16 I do not support the suggestion however, that the -- J 17 present discussion should be postponed until the whole issue 18 of local currency expenditures has been dealt with by this 19 I Board. I 20 By the same token I welcome the suggestion that in 21 certain cases expenditures on advisory and management services 22 of foreign personnel may be treated as capital rather than 23 recurrent costs which a.re not normally financed by Bank/ID.A.. 24 Dr. Machado has indicated that the document has 25 omitted to mention fight against natural hazards, such as ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 71 1 foot and rnou th and the Panama diseases. I would also like., 2 Mr. Chairman., to draw attention to the terrible devastation 3 which is inflicted on quite a number of our countries by the 4 migratory locust. rrhis is an area where I believe that an 5 organization like the Bank can really play a necessary role, s in that these destructive creatures are indeed no respect~rs 7 of political boundaries., since they may start somewhere in th a Arabian Deser•t and end up on the West African Coast, destroyir g 9 every imaginable crop and greenery in their wake. 10 There is., I think, an international organization 11 whose specific responsibility it is to keep a check on this I 12 menace. The Bank could be of great assistance if at any time 13 the question of finance for this worthwhile campaign should FR 14 come up. 15 'rhank you, Ml"'. Chairman. 16 THE CHAIR.MJ1N: Thank you, Mr. Garba. 17 Dr. Machado. 18 :MR. MACHADO: Mr·. President., at the meeting la.st 19 r.rhursday, I said everything I had to say· about this paper. 20 I fully congratulate you and the staff in presenting it to 21 us, and I welcome the reconnnendations., being in full agreemen 22 with them. I merely pointed out not omissions., because I 23 think: this paper is very complete., but supplementary services 24 such as the ser"iz:ili.ce that the Bank., in conjunction with 25 other organizations, and perhaps some of these charity funds., ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C, STRICTLY CONFIDENTIAL 72 ),o 1 could be in assisting in an eradication or minimizing natural i- 2 plagues lilrn the Panama disease in the bananas and 'che hoof 3 and mouth disease in cattle which are everybody 1 s problem 4 and nobody's business. s Now, the reason why I am speaking today, and I will 6 be very short., I would like to spare your time and my ener~ie, 7 to discuss the question of local expenditures when we come to 8 the paper that I hope very shortly will be. before us and how 9 in my opinion the Bank can assist the member countries to 10 solve this problem. 11 The reason why I speak today is because I want some 12 of my colleagues in Gndorsing the general ideas submitted by 13 you., and I am very happy to find that we are :almost in FR 14 unanimous agreement on the basic pointsf/ have expressed some II 15 hesitation about the use of the term agrarian reform. n And 11 16 I would lUce to defend the term agrarian reform 11 and congratu ate 11 you and the staff for having the courage to bring it out.· 18 I look at it this way: Just beca1-1Se a lot of uneduc ted 19 people like to curse a.nd .in their blasphemy they invoke the 20 name of God in vain is no reason why all good, honestf/ moral 21 religious citizens should not call God by his proper name. 11 22 It seems to me that the term agrarian reformn is 23 just exactly what the Banl{ wants to do and what we should do 24 and not be ashamed of it. I believe that political demagogues 25 in many countries have seen the oppox•tunity of stealing a ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL '73 ff l beautifuJ. phrase which j.m most cases is purely used in ,.),ff '{ i-11,1..vo\/J 2 ~.;y; way to get votes without any accomplishment. y... 3 Now, the term H , " agrarian reform 11 as defined on page 4 is not, as the footnote says., 11 land reform 11 which is a s different subject. Agrarian reform in the broader sense is s improvement of land utilization., improvement in tenure arrang - 7 ment, governmental agricultural services., problem of prices, 8 other economic policies, marlrnting., suppl~r of credit, and 9 farmer requisites. 10 It seems to me what we want to do, we merely though' ....: 11 about agricultural proje~ts we. are narrowing unnecessarily 12 the field of what we want to do and the benefits of the . 13 Bank Is a.gricul tural development pr•ogram • FR 14 Actually, as you have well explained and everybody 15 knows., this thing will not take a lot of money and certainly ,. 16 not a lot of foreign exchange. Most of the program will 17 require cooperation also that in addition to some financing 18 on our part and a great deal of financing from local l9 institutions will requir•e the assistance of the government. i i'4 ft,, t'th'\'f 20 Whe:r:'e we find ..t;,w._q,-4; countr'y!\ has a policy of fixed price to ·' 21 supply cheap food to the population; but at a price where the ' . 22 farmer cannot make any money., we cannot possibly carry on 23 an agricultural development project unless that thing is cha.n ·ed. • 24 Just in the same manner when ·we finance a public il>l i\, CO'"'' TR.y \ 25 utility/\ Hhere the rates a.re too low, we first co.nvince-tTi.e- ~- )(. ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL l the country that the wisdom of adjusting the rates to the 2 point of where the seruice can be self-supporting .. So this 3 is reform; this is not financing. This is reform. It may ca .. 4 for reform of the laws or reform of the system and reform in 5 some of their local institutions and in this sense I won 1 t be 11 6 afraid of using the word reform 11 because., as Mr. Lieftinck 7 pointed out, we would never use it in a political sense. 8 Actually, what we want to do in agriculture is 9 reform. Reform., not only in financing,, but in the methods 10 and the procedure in the whole conception of the agricultural 11 11 problem. And I thinlc that b~· using the term agrarian reform', 12 we are claiming our legitimate corner which has been invaded 13 by unscrupulous, not enemy., but adversary, and we shouldn 1 t FR be afraid of offering to developing count;ries a true,S.. 14 15 alternative with economic contents like I am sure the Bank 16 would. 17 Once we establish the general pattern of a country, 18 we find that they can choose between the empty., hollow 19 . political reform., agrarian ,,r·eform, offered by the demagogues 20 or· the sound financing and common sense policy of the Banh:. 21 So I congratulate you for using the term. I hope 22 that I have dispelled 'che apprehensions or the fears of. some 23 of my colleagues and I hope v,e will have a real message. 24 The reason why I don 1 t think vrn should call this 25 "agricultural projects 11 is because the problem of our countri s ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE., N.W. WASHINGTON, D. C, STRICTLY CONFIDENTIAL 75 l a.nd certainly the program of the Bank would not be accomplished 2 by just developing a. few little jewels in bare hands or, shall 3 I say, paradise or an oasis in agricultural desert in a 4 country. 5 rrhe basic thing, if this thing is going to do any 6 good to a country., is to have a pr·ogram that will cover the 7 most, the largest part of the populatiop. with the least amount 8 of financial help. And this, I am sure, :Mr. President, we 9 can accomplish if' we are not afraid of facing the problem and ID certainly not afraid of calling a spade a spade. 11 THE CHi1..IRMA.N: Thank you, Dr. Ma.ohado. 12 I think it is reasonably clear now that we will all ()i.A.-i' 11 13 use the phrase agra.rian reform11 witJ:.11' inhibitions. Each FR 14 Executive Director who has evidenced the desire to comment on 15 this paper numbered one in the financial policy documents 1s in this year 196L~ has now had an opportupi ty to comment. 17 I am grateful for these comments. They have been thoughtful., 18 and I know· they will be helpful. 'l'he staff ;;rill digest and 19 tabulate the viewpoints expressed, and it goes without saying 20 that I will be guided by the expressions of the Ex,::cutive 21 Director·s. 22 There isn 1 t a.ny further discussion contemplated., 23 programmed, on the subject of this agricultural paper.., and if 24 any other Direoto.rs feel impelled to comment or ma.lee any ~ observation with respect to it or any of the others who have ACE-FEDERAL REPORTERS, INC. 261 CONSTITUTION AVE .. N.W. WASHINGTON, D. C. STRICTLY CONFIDENTIAL 76 l already spoken would like to do so, there will be occasion 2 in the future. 3 Certainly, we will have a report, as ha~ been 4 indicated., from Mr. Demuth on the results of his expedition 5 into the land of F1AO and UNESCO., and there will be further 6 opportunity at that/time to comment on this paper. 1 The sense of what I have out of this discussion is 8 that there is a general acceptance that the Bank should go 9 forward., should set itself up in the staff level to expand an 10 enlarge its activities in the area of agrarian reform, and we 11 propose to do that. 12 Mr. Suzuki has indicated he ·would like to speak. 13 If you are going to speal,{ at length., Mr. Suzulci., would you FR 14 prefer to do it at the next meeting, and, yet, on the other 15 hand., :y·ou can do it both times • 16 Ml1. suzmcr: In the future. 17 THE CHAIRMt\N: Very good. 18 In that case., 'che meeting stands adjourned and we 19 will meet in the lunch room. 20 (Whereupon., at 12:~7 o 1 clock p.m., the meeting 21 adjourned.) 22 I :: ACE-FEDERAL REPORTERS, INC. 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